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

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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 ...
View Full Document

This note was uploaded on 02/05/2012 for the course ACCOUNTING acct 504 taught by Professor Dehmal during the Spring '10 term at DeVry Pittsburgh.

Ask a homework question - tutors are online