Sandstone Consulting has two divisions, Information Technology Services and Business Consulting Services. In addition to its external customers, each division performs work for the other division. The external fees earned by each division in the past year were $200,000 for Information Technology Services and $350,000 for Business Consulting Services. Information Technology Services worked 3,000 hours for Business Consulting Services and Business Consulting Services in turn worked 1,200 hours for Information Technology Services. The total costs of external services performed were $110,000 by Information Technology Services, and $240,000 by Business Consulting Services.

Required:

1. Determine the operating income for each division and for the company as a whole if the transfer price from Information Technology Services to Business Consulting Services is $15 per hour and the transfer price from Business Consulting Services to Information Technology Services is $12.50 per hour.

2. Determine the operating income for each division and for the company as a whole if the transfer price from each to the other is $15 per hour.

3. What are the operating income results for each division and for the company as a whole if the two divisions net their hours worked for each other and charge $12.50 per hour

Answer rating: 100% (QA)

To determine the operating income for each division and for the company as a whole well calculate the revenues costs and operating income based on the ... View the full answer