Highpointe Division sells a part internally to Low Division.Low Division uses the part to produce inexpensive products sold at discount stores.Highpointe Division incurs costs of $1.50 per part,while Low Division incurs additional costs of $4.80 per product.Highpointe Division sells the part to Low Division for $2.00 per part. Low Division can purchase the part from an outside supplier for $1.00 per part,but does not accept the offer.The final product is sold to external customers for $8.00 each.Which of the following formulas correctly reflects the company's operating income?
A)$8.00 - $1.50 - $4.80 - $2.00 - $1.00 = $(1.30)
B)$8.00 - $1.50 - $4.80 = $1.70
C)$8.00 - $4.80 - $2.00 = $1.20
D)$8.00 - $1.50 = $6.50

Question

Quizplus · Accepted Answer

The correct formula is: $8.00 - $1.50 - $4.80 = $1.70. This formula takes into account the revenue from the sale of the final product, the costs incurred by Highpointe Division, the costs incurred by Low Division, and the transfer price of the part.

Highpointe Division Sells a Part Internally to Low Division