# 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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