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Unformatted text preview: 22-33 (Cont'd.) decks in column 2 or 3 and leave everything else unchanged. This gives a higher net cost of $235,000 to Sather Corporation as a whole. It is only if the price charged by the outside supplier falls below $41 that Sather Corporation as a whole is better off purchasing from the outside market. Setting the transfer price at $41 per unit achieves goal congruence. 22-34 (40-50 min.) Transfer pricing, utilization of capacity.
1. Super-chip Okay-chip Selling price Direct materials Direct manufacturing labor Contribution margin per unit Contribution margin per hour ($30 2; $4 0.5) $60 2 28 $30 $15 $12 1 7 $ 4 $ 8 Because the contribution margin per hour is higher for Super-chip than for Okay-chip, CIC should produce and sell as many Super-chips as it can and use the remaining available capacity to produce Okay-chip. The total demand for Super-chips is 15,000 units, which would take 30,000 hours (15,000 2 hours per unit). CIC should use its remaining capacity of 20,000 hours (50,000 30,000) to produce 40,000 Okay-chips (20,000 0.5). 2. Options for manufacturing process-control unit Using Circuit Board Super-chip Selling price Direct materials Direct manufacturing labor (Super-chip) Direct manufacturing labor (Process-control unit) Contribution margin per unit Overall Company Viewpoint Alternative 1: No Transfer of Super-chips $132 60 0 50 $ 22 $132 2 28 60 $ 42 Using Sell 15,000 Super-chips at contribution margin per unit of $30 Transfer 0 Super-chips Sell 40,000 Okay-chips at contribution margin per unit of $4 Sell 5,000 Control units at contribution margin per unit of $22 Total contribution margin $450,000 0 160,000 110,000 $720,000 ...
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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.
- Spring '10
- Financial Accounting