Dickens Company has two divisions,Bloom and Heath.Bloom produces an item that Heath could use in its production.Heath currently is purchasing 5,000 units from an outside supplier for $44 per unit.Bloom has sufficient capacity and has variable costs of $35 per unit.The full cost to manufacture the unit is $41.Bloom currently sells 450,000 units at a selling price of $48 per unit.
a.What will be the effect on Dickens Company's operating profit if the transfer is made internally?
b.What will be the change in profits for Bloom if the transfer price is $41 per unit?
c.What will be the change in profits for Heath if the transfer price is $41 per unit?

Question

Quizplus · Accepted Answer

The Answer of Dickens Company has two divisions,Bloom and Heath.Bloom produces an item that Heath could use in its production.Heath currently is purchasing 5,000 units from an outside supplier for $44 per unit.Bloom has sufficient capacity and has variable costs of $35 per unit.The full cost to manufacture the unit is $41.Bloom currently sells 450,000 units at a selling price of $48 per unit.
a.What will be the effect on Dickens Company's operating profit if the transfer is made internally?
b.What will be the change in profits for Bloom if the transfer price is $41 per unit?
c.What will be the change in profits for Heath if the transfer price is $41 per unit?

Dickens Company Has Two Divisions,Bloom and Heath