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# 23 - 22-28(Cont'd Or the same facts can be analyzed for the...

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22-28 (Cont’d.) Or the same facts can be analyzed for the company as a whole: Sales of intermediate product, 800 × (\$200 – \$120) = \$64,000 Sales of final products, 200 × [300 – (\$120 + \$120)] = 12,000 Total contribution \$76,000 If the transfer price were \$195, B would not accept the transfer and would not earn any contribution. As shown above, Division A and the company as a whole will earn a total contribution of \$75,000 instead of \$76,000. 2. a. Division A can sell 900 units at \$195 to the outside market and 100 units to Division B, or 800 at \$200 to the outside market and 200 units to Division B. Note that, under both alternatives, 100 units can be transferred to Division B at no opportunity cost to A. Using the general guideline, the minimum transfer price of the first 100 units [901–1000] is: TP 1 = \$120 + 0 = \$120 If Division B needs 100 additional units, the opportunity cost to A is not zero, because Division A will then have to sell only 800 units to the

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