25 - 22-28 (Cont'd.) By formula, costs are: + = = $120 +...

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Unformatted text preview: 22-28 (Cont'd.) By formula, costs are: + = = $120 + $120 + $75 $20 = $175 *Contribution of $30 per unit by B is not given up if transfer occurs, so it is not relevant here. 2a. At most, Division A can sell only 900 units and can produce 1,000. Therefore, at least 100 units should be transferred, at a transfer price no less than $120. The question is whether or not a second 100 units should be transferred. Company Viewpoint a: Sell 900 outside at $195 transfer 100 Transfer price $195 Variable cost 120 Contribution $ 75 900 = $67,500 b: Sell 800 outside at $200, Transfer price Variable cost Contribution $200 120 $ 80 800 = $64,000 Total contribution forgone if transfer of 100 units occurs = $67,500 $64,000 = $3,500 (or $35 per unit) + = Transfer price $120 + 2b. By formula: + = $120 + = $120 + $75 $40 = $155 Transfer Price Schedule (minimum acceptable transfer price) Units Transfer Price $35 = $155 ...
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