Question

Division A sells ground veal internally to Division​ B, which in​ turn, produces veal burgers that sell for $ 20.00 per pound. Division A incurs costs of $ 2.25 per pound while Division B incurs additional costs of $ 8.50 per pound. What is Division​ A's operating income per​ burger, assuming the transfer price of the ground veal is set at $ 4.00 per​ burger? A. $ 4.50 B. $ 4.25 C. $ 2.25 D. $ 1.75

Answer 1

Answer:

Division A

Operating Income:

Transfer Price = $4.00

Less Costs = $2,25

Operating Income = $1.75

Explanation:

The Transfer Price of $4.00 per burger to Division B is the selling price for Division A's product.

When the costs of producing Division A's product is subtracted from the selling price (transfer price), the result is the operating income.

Operating income is, therefore, the difference between selling price and costs.  These costs include the cost of goods sold and other expenses, like wages and salaries, rent, etc.  It is the income subject to taxes and profit distribution.