Use the following information for the next 3 questions.
Division X sells organic high-gluten flour to Division Y. Division X incurs costs of $0.375 per pound of flour. Division Y makes loaves of bread that sell for $2.50 each. Division Y incurs costs of $1.25 per loaf, excluding the cost of the flour. Each loaf of bread uses one-half pound of flour.
-What is the operating income per loaf for Division Y if the transfer price is set at $0.625 per pound for flour?
A) $0.6250
B) $0.9375
C) $1.2500
D) $0.8750

Question

Quizplus · Accepted Answer

The cost of flour per loaf is $0.625 * 0.5 = $0.3125. Total cost per loaf is $1.25 + $0.3125 = $1.5625. Revenue per loaf is $2.50. Operating income per loaf is $2.50 - $1.5625 = $0.9375.

Use the Following Information for the Next 3 Questions