Question

The Miller Manufacturing Company has two divisions. The Cutting Division prepares timber at its sawmills. The Assembly Division prepares the cut lumber into finished wood for the furniture industry. No inventories exist in either division at the beginning of 2019. During the year, the Cutting Division prepared 60,000 cords of wood at a cost of $660,000. All the lumber was transferred to the Assembly Division, where additional operating costs of $6 per cord were incurred. The 600,000 boardfeet of finished wood were sold for $2,500,000. Required: Determine the operating income for each division if the transfer price is $9 per cord.

Answer 1

Answer and Explanation:

The computation of the operating income in the case when the transfer price is $9 per cord

Particular Cutting Assembly

Revenue $540,000 $2,500,000

(60,000 × $9)

Cost of service

Incurred $660,000 $360,000

(60,000 × $6)

Transfered in $0 $540,000

Total $660,000 $900,000

Operating income -$120,000 $1,600,000