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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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