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Social ScienceMaterials used by the Instrument Division of T_Kong Industries are currently purchased from outside suppliers at a cost of $290 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $241 per unit.a. If a transfer price of $264 per unit is established and 39,200 units of materials are transferred, with no reduction in the Components Division’s current sales, how much would T_Kong Industries’ total income from operations increase?$b. How much would the Instrument Division’s income from operations increase?$c. How much would the Components Division’s income from operations increase?$
Materials used by the Instrument Division of T_Kong Industries are currently purchased from outside suppliers at a cost of $290 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $241 per unit.
a. If a transfer price of $264 per unit is established and 39,200 units of materials are transferred, with no reduction in the Components Division’s current sales, how much would T_Kong Industries’ total income from operations increase?
$
b. How much would the Instrument Division’s income from operations increase?
$
c. How much would the Components Division’s income from operations increase?
$
Expert Answer
Cost accounting is the branch of accounting that inspects the cost structure of a business. This branch deals with gathering data about the expenses incurred by the activities of the organization and assigning the cost to various products and services.
a. To calculate the increase in TK industries total income from operations:
Increase in income from operations= Total purchase cost –Total variable cost
= ($290 × 39,200) - ($241 × 39,200)
= $11,368,000 - $9,447,200
=$1,920,800
b. To calculate the increase in income from operations of instrument division:
Increase in income from operations= Total purchase cost – Total transfer price
= ($290 × 39,200) - ($264 × 39,200)
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