This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full 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
- Spring '10
- Financial Accounting