Question

Division X sells organic high-gluten flour to Division Y. Division X incurs costs of $0.375 per kilogram 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 flour. Each loaf of bread uses one-half kilogram of flour. What is the operating income for the entire organization if 100,000 loaves of bread are sold?

Answer 1

Calculation of operating income for the entire organization if 100000 loaves of bread are sold:

In order to calculate operating income for the entire organisation we should eliminate inter division profits, if any.

Particulars Amount($)

Sales (100000*$2.5) 250000

Less : Cost of flour (100000*$0.375/2) 18750

cost incurred by Division Y (100000*$1.25) 125000

Operating income 106250