Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and

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Question:

Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing Division, which completes the shoes and sells them to retailers. The Stitching Division "sells" shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $42. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-101,000 units. The fixed costs for the Polishing Division are assumed to be $23 per pair at 101,000 units.

Stitching's costs per pair of shoes are:

Direct materials $19

Direct labor $17

Variable overhead $15

Division fixed costs $13

Polishing's costs per completed pair of shoes are:

Direct materials $18

Direct labor $6

Variable overhead $10

Division fixed costs $19

If the Polishing Division sells 101,000 pairs of shoes at a price of $180 a pair to customers, what is the operating income of both divisions together?