37 - 22-34 (Cont'd.) Alternative 2: Transfer 5,000...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

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

Unformatted text preview: 22-34 (Cont'd.) Alternative 2: Transfer 5,000 Super-chips to Process-Control Division. These Super-chips would require 10,000 hours to manufacture, leaving only 10,000 hours for the manufacture of 20,000 Okay-chips (10,000 0.5) Sell 15,000 Super-chips at contribution margin per unit of $30 Transfer 5,000 Super-chips to Process-Control Division Sell 20,000 Okay-chips at contribution margin per unit of $4 Sell 5,000 Control units at contribution margin per unit of $42 Total contribution margin $450,000 0 80,000 210,000 $740,000 CIC is better off transferring 5,000 Super-chips to the Process-Control Division. 3. For each Super-chip that is transferred, two hours of time (labor capacity) are given up in the Semiconductor Division, and, in those two hours, four Okay-chips could be produced, each contributing $4. = + = = $30 + $46 per unit $16 If the selling price for the process-control unit were firm at $132, the ProcessControl Division would accept any transfer price up to $50 ($60 price of circuit board - $10 incremental labor cost if Super-chip used). However, consider what happens if the transfer price of Super-chip is set at, say, $49, and the price of the control unit drops to $108. From CIC's viewpoint: Using Circuit Board Super-chip Selling price Direct materials Direct manufacturing labor Contribution margin per hour $108 60 50 $ 2 $108 49 60 $ 1 Using Process-Control Division will not produce any control units. From the company's viewpoint, the contribution margin on the control unit if the Super-chip is used is: Selling price Direct materials Direct manufacturing labor (Super-chip) Direct manufacturing labor (process-control unit) $108 2 28 60 Contribution margin per unit $ 18 ...
View Full Document

Page1 / 2

37 - 22-34 (Cont'd.) Alternative 2: Transfer 5,000...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online