Division A manufactures electronic circuit boards. The boards can be sold either to Division B of the same company or to outside customers. Last year, the following activity occurred in Division A: Selling price per circuit board $ 178
Variable cost per circuit board $ 121
Number of circuit boards:
Produced during the year 21,800
Sold to outside customers 14,200
Sold to Division B 7,600

Sales to Division B were at the same price as sales to outside customers. The circuit boards purchased by Division B were used in an electronic instrument manufactured by that division (one board per instrument). Division B incurred $270 in additional variable cost per instrument and then sold the instruments for $650 each.

Required:

1. Calculate the net operating incomes earned by Division A, Division B, and the company as a whole.

2. Assume Division A’s manufacturing capacity is 21,800 circuit boards. Next year, Division B wants to purchase 8,600 circuit boards from Division A rather than 7,600. (Circuit boards of this type are not available from outside sources.) From the standpoint of the company as a whole, should Division A sell the 1,000 additional circuit boards to Division B or continue to sell them to outside customers?