Neely Systems Corporation manufactures and sells various high-tech office automation products. Two divisions of Neely Systems Corporation are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:Selling price per chip$50 Variable costs per chip$20 Fixed production costs$60,000 Fixed SG&A costs$90,000 Monthly capacity10,000chipsExternal sales6,000chipsInternal sales0chipsPresently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month.Refer to Neely Systems Corporation. If a transfer between the two divisions is arranged next period at a price (on 4,000 units of super chips) of $40, total profits in the Computer Chip division willSelect one:a. rise by $20,000 compared to the prior periodb. drop by $20,000 compared to the prior periodc. drop by $40,000 compared to the prior periodd. rise by $80,000 compared to the prior period

Solution: Spare capacity of Computer chip division = 10000 - 6000 = 4000 chips Variable cost per…

Answered: Neely Systems Corporation manufactures…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 4CE

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Neely Systems Corporation manufactures and sells various high-tech office automation products. Two divisions of Neely Systems Corporation are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip	$50
Variable costs per chip	$20
Fixed production costs	$60,000
Fixed SG&A costs	$90,000
Monthly capacity	10,000	chips
External sales	6,000	chips
Internal sales	0	chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month.

Refer to Neely Systems Corporation. If a transfer between the two divisions is arranged next period at a price (on 4,000 units of super chips) of $40, total profits in the Computer Chip division will

Select one:

a. rise by $20,000 compared to the prior period

b. drop by $20,000 compared to the prior period

c. drop by $40,000 compared to the prior period

d. rise by $80,000 compared to the prior period

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