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Unformatted text preview: 22-34 (Cont'd.) The contribution margin per unit from producing Super-chips for the processcontrol unit exceeds the contribution margin of $16 from producing 4 Okay-chips, each yielding a contribution margin of $4 per unit. Hence the Semiconductor Division should transfer 5,000 Super-chips as the following calculations show: Alternative 1--No transfer (and, therefore, no sales of process-control units) Sell 15,000 Super-chips at contribution margin per unit of $30 Sell 40,000 Okay-chips at contribution margin per unit of $4 $450,000 160,000 $610,000 Alternative 2--Transfer 5,000 Super-chips. $450,000 80,000 90,000 $620,000 Therefore, if the price for the control unit is uncertain, the transfer price must be set at the minimum acceptable transfer price of $46. 4. For a transfer of any amount between 0 and 10,000 Super-chips (which require 2 hours each to produce), the opportunity cost is the production of Okay-chips (which require hour each). In this range, the relevant costs are equal to the transfer price of $46 established in part 3. If more than 10,000 Super-chips are transferred, the opportunity cost becomes the sale of Super-chips on the outside market. Now the minimum transfer price per Super-chip becomes + = $30 + ($60 $30) = $60, the market price. At this transfer price, it is cheaper for the Process-Control Division to buy the circuit board for $60, since $10 of additional direct manufacturing labor cost is saved. The Semiconductor Division should at most transfer 10,000 Super-chips. Internal Demand 010,000 10,00025,000 Transfer Price $46 60 Sell 15,000 Super-chips at contribution margin per unit of $30 Sell 20,000 Okay-chips at contribution margin per unit of $4 Sell 5,000 control units at contribution margin per unit of $18 ...
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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