Question

The Jordan Company has two divisions and manufactures one type of watch. The two divisions are the production Division and the Package & Delivery Division. The production Division manufactures watches and then sells them to the Package & Delivery Division, which packs the watches and sells them to retailers. The market price for the Package & Delivery Division to purchase this watch is £40.

Production’s cost per watch are:	£
Direct materials	5
Direct labour	7
Variable overhead	5
Division fixed cost	3

Package & Delivery’s cost per watch are:	£
Direct materials	8
Direct labour	4
Variable overhead	5
Division fixed cost	15

Notes: Fixed costs shown above are per pair for 100,000 units.

Required:

a) If the Package & Delivery Division purchases 100,000 watches from production departments and sells to retailers at a price of £160 per watch, what is the operating income of the Jordan Company?

Answer 1

Cost for package and delivery division	40	per unit
Direct material	5	per unit
Direct labour	7	per unit
Variable overhead	5	per unit
Division fixed cost	3	per unit
Total production's cost per watch	60	per unit
Direct material	8	per unit
Direct labour	4	per unit
Variable overhead	5	per unit
Division fixed cost	15	per unit
Total cost for Jordan	92	per unit
Sales price per unit	160	per unit
Profit per unit	68	per unit
No. of units sold	1,00,000
Operating income	68,00,000