class notes lec 1-12 - *I have highlighted what I think I...

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*I have highlighted what I think I think is wrong in red and I will highlight it in green to explain as to why. Problem 2 2) The San Ramon Corporation makes water pumps. The Engine Division makes the engines and supplies them to the Assembly Division where the pumps are assembled. San Ramon is a successful and profitable corporation that attributes much of its success to its decentralized operating style. Each division manager is compensated on the basis of division operating income. The Assembly Division currently acquires all its engines from the Engine Division. The Assembly Division manager could purchase similar engines in the market for $400. The Engine Division is currently operating at 80% of its capacity of 4,000 units and has the following particulars: Direct materials ($ 125 per unit x 3,200 units) $400,000 Direct manufacturing labor ($50 per unit x 3,200 units) 160,000 Variable manufacturing overhead costs ($25 per unit x 3,200 units) 80,000 Fixed manufacturing overhead costs 520,000 All the Engine Division’s 3,200 units are currently transferred to the Assembly Division. No engines are sold to the outside market. The Engine Division has just received an order for 2,000 units at $375 per engine that would utilize half the capacity of the plant. The order has either to be taken in full or
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