Vitamin D Dairy Has Two Divisions,Distribution and Production

Vitamin D Dairy has two divisions,Distribution and Production.The company's primary product is milk.Each division's costs are provided below:

The Distribution Division has been operating at a capacity of 4,500,000 gallons a week and usually purchases 2,250,000 gallons from the Production Division and 2,250,000 gallons from other suppliers at $1.00 per gallon.
Required
What is the transfer price per gallon from the Production Division to the Distribution Division,assuming the method used to place a value on each gallon of milk is 170% of variable costs? Next,compute the transfer price per gallon from the Production Division to the Distribution Division,assuming the method used to place a value on each gallon of milk is 130% of full costs.
Assume 150,000 gallons are transferred from the Production Division to the Distribution Division for a transfer price of $0.85 per gallon.The Distribution Division sells the 150,000 gallons at a price of $1.20 each to customers.What is the operating income of both divisions together?

A) $0.10; $0.60; $85,000
B) $0.12; $0.61; $90,000
C) $0.14; $0.62; $92,000
D) $0.16; $0.64; $94,000
E) $0.18; $0.66; $96,000

Correct Answer:

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