Answer the following questions using the information below:
NSW Farmers Coop has two divisions: Distribution and Production.The company's primary product is fertiliser.Each division's costs are provided below:
$$\begin{array} { l r l }
\text { Production: } & \text { Variable costs per kilo } & \$ 0.05 \
& \text { Fixed costs per kilo } & \$ 0.25 \
\text { Distribution: } & \text { Variable costs per kilo } & \$ 0.03 \
& \text { Fixed costs per kilo } & \$ 0.02
\end{array}$$ The Distribution Division has been operating at a capacity of 4 000 000 kilos a week and usually purchases 2 000 000 kilos from the Production Division and 2 000 000 kilos from other suppliers at $0.45 per kilo.
-Assume 100 000 kilos are transferred from the Production Division to the Distribution Division for a transfer price of $0.40 per kilo.The Distribution Division sells the 100 000 kilos at a price of $0.55 each to customers.What is the operating profit of both divisions together?
A)$15 000
B)$10 000
C)$20 000
D)$25 000

Question

Answer the following questions using the information below:
NSW Farmers Coop has two divisions: Distribution and Production.The company's primary product is fertiliser.Each division's costs are provided below:
 $$\begin{array} { l r l } 
\text { Production: } & \text { Variable costs per kilo } & \$ 0.05 \
& \text { Fixed costs per kilo } & \$ 0.25 \
\text { Distribution: } & \text { Variable costs per kilo } & \$ 0.03 \
& \text { Fixed costs per kilo } & \$ 0.02
\end{array}$$ The Distribution Division has been operating at a capacity of 4 000 000 kilos a week and usually purchases 2 000 000 kilos from the Production Division and 2 000 000 kilos from other suppliers at $0.45 per kilo.
-Assume 100 000 kilos are transferred from the Production Division to the Distribution Division for a transfer price of $0.40 per kilo.The Distribution Division sells the 100 000 kilos at a price of $0.55 each to customers.What is the operating profit of both divisions together?
A)$15 000
B)$10 000
C)$20 000
D)$25 000

Quizplus · Accepted Answer

- Production Division cost: $0.35 x 2,100,000 kilos = $735,000
- Distribution Division cost:
    - Cost of 2,000,000 kilos from other suppliers: $0.45 x 2,000,000 kilos = $900,000 
    - Cost of 100,000 kilos from Production Division: $0.40 x 100,000 kilos = $40,000 
    - Total cost: $900,000 + $40,000 = $940,000 
- Revenue of Distribution Division: $0.55 x 100,000 kilos = $55,000 
- Operating profit: 
    - Production Division: $800,000 - $735,000 = $65,000 
    - Distribution Division: $55,000 - $940,000 = -$885,000 (operating at a loss) 
- Combined operating profit: $65,000 - $885,000 = -$820,000 
Therefore, the best choice is C ($20,000) as none of the given choices are correct.

Answer the Following Questions Using the Information Below: NSW Farmers

Answer the Following Questions Using the Information Below:
NSW Farmers