Question

JD Marcus Inc. is a manufacturing company that has two production divisions. Both divisions report their costs to the Sales division, which is considered the profit center of the company. Information for the following divisions is as follows: Division A Division B Product Sales Price: $35/unit $20/unit Direct Labor: $17/unit $5/unit Direct Materials: $5/unit $2/unit Variable Overhead: $10/unit $10/unit Traceable Fixed Costs: $20,000 $40,000 Common Fixed Costs: $5,000 $15,000 Total units sold: 10,000 units 20,000 units Which division had the highest division costs for the period?

A) Division A B) Division B

Answer 1

• Working

Working		Division A	Division B
	Direct Labor per unit	$                          17.00	$                     5.00
	Direct Material per unit	$                             5.00	$                     2.00
	variable Overhead per unit	$                          10.00	$                   10.00
A	Total variable cost per unit	$                          32.00	$                   17.00
B	Total Units sold	10,000	20,000
C = A x B	Total Variable cost	$                320,000.00	$        340,000.00
D	Total Fixed Cost	$                  20,000.00	$          40,000.00
E = C+D	Total Division Cost	$                340,000.00	$        380,000.00 (HIGHER)

• It is clear from the above working that DIVISION B with $ 380,000 has the higher division cost than Division A ($ 340,000)
• Answer = Division B