24 - 22-28(Cont'd b The manager of Division B will not want...

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Unformatted text preview: 22-28 (Cont'd.) b. The manager of Division B will not want to purchase more than 100 units because the units at $155 would decrease his contribution ($155 + $150 > $300). Because the manager of B does not buy more than 100 units, the manager of A will have 900 units available for sale to the outside market. The manager of A will strive to maximize the contribution by selling them all at $195. This solution maximizes the company's contribution: 900 ($195 $120) 100 ($300 $270) which compares favorably to: 800 ($200 $120) 200 ($300 $270) = = $64,000 6,000 $70,000 = = $67,500 3,000 $70,500 ALTERNATIVE PRESENTATION (by James Patell) 1. Company Viewpoint b: Sell 800 outside at $200, Transfer price Variable costs Contribution $200 120 $ 80 800 = a: Sell 1,000 outside at $195 transfer 200 Price $195 Variable costs 120 Contribution $ 75 1,000 = $75,000 $64,000 Total contribution given up if transfer occurs* = $75,000 $64,000 = $11,000 On a per-unit basis, the relevant costs are: + = Transfer price $120 + = $175 ...
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