The Smilay Corporation is considering closing Division X because of low profitability. The corporation currently calculates transfer prices using the cost method. Division X sells 80% of its production to other divisions of the corporation. The following information pertains to Division X for the year just ended: mk2

Required:
Develop an analysis that should be made before closing Division X. Assume the following: negotiated transfer price equals $9 per unit, cost plus assumes a 25% markup on full cost, dual transfer price markup equals 15%.

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Sales to outside firms (40,000 units).. Sales to other divisions of the corporation (160,000 units). Variable costs per unit... Fixed costs per unit (based on normal capacity of 200,000 units) $ 400,000 1,280,000 5 3