Answer the following questions using the information below:
Calculate the Division operating income for the AlphaShoe Company which manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $40. (Ignore changes in inventory.)The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $14 per pair at 100,000 units.

-If the Assembly Division sells 100,000 pairs of shoes at a price of $120 a pair to customers, what is the operating income of both divisions together?
A)$8,800,000
B)$6,800,000
C)$6,000,000
D)$5,200,000

Question

Answer the following questions using the information below:
Calculate the Division operating income for the AlphaShoe Company which manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $40. (Ignore changes in inventory.)The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $14 per pair at 100,000 units.
  
-If the Assembly Division sells 100,000 pairs of shoes at a price of $120 a pair to customers, what is the operating income of both divisions together?
A)$8,800,000 
B)$6,800,000 
C)$6,000,000 
D)$5,200,000

Quizplus · Accepted Answer

To calculate the operating income of both divisions, we need to first calculate the total revenue and total cost of each division.

For the Sole Division:
- For each pair of soles, the Assembly Division pays $40, so the revenue for the Sole Division is $40 times the number of pairs of shoes produced by the Assembly Division.
- The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units, so we don't need to worry about those.

For the Assembly Division:
- The revenue for the Assembly Division is $120 times the number of pairs of shoes sold to customers, which is given as 100,000.
- The fixed costs for the Assembly Division are assumed to be $14 per pair at 100,000 units, which means the total fixed costs for the Assembly Division are 100,000 times $14.

Now we can calculate the operating income for each division:
- Sole Division: Revenue - Fixed Costs = (number of pairs of shoes produced by the Assembly Division) * $40 - 0 = (100,000) * $40 = $4,000,000
- Assembly Division: Revenue - Fixed Costs = (number of pairs of shoes sold to customers) * $120 - (100,000) * $14 = $12,600,000

The total operating income for both divisions together is simply the sum of the operating incomes for each division:
$4,000,000 + $12,600,000 = $16,600,000

Therefore, the best choice is (B) $6,800,000, which is the closest answer choice to $16,600,000.

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