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MattLew Company manufactures only one type of washing machine and has two divisions, the Compressor...

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Accounting

MattLew Company manufactures only one type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $40.00. (Ignore changes in inventory.) The fixed costs for the Compressor and Fabrication Divisions are assumed to be the same over the range of 1,000 - 5,000 units.

Compressor's costs per compressor are:

Direct materials $15.00

Direct labour $7.25

Variable overhead $3.00

Division fixed costs $7.50

Fabrication's costs per completed washing machine are:

Direct materials $150.00 (excluding the transfer price of the compressor)

Direct labour $62.50

Variable overhead $20.00

Division fixed costs $7.50

If the Fabrication Division sells 1,000 units of the washing machines at a price of $375.00 per washing machine to customers, what is MattLews operating income?

a.

$105,500
b.

$102,250
c.

$97,000
d.

$82,875
e.

None of the answers.

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