Ethics, transfer pricing. The Belmont Division ofDurham Industries manufactures compo¬

nent R47, which it transfers to the Alston Division at 200% of variable costs. The variable costs of R47 are $16.80 per unit. Joe Lasker, the management accountant of the Belmont Division, calls Hal Tanner, his assistant, into his office. Lasker says, “I am not sure about the fixed and variable cost distinctions you are making. I think the variable costs are higher than

$16.80 per unit.”

Tanner knows that showing higher variable costs will increase the Belmont Division’s profits and lead to higher bonuses for the division employees. However,

Tanner is uncomfortable about making any changes because he has used the same method to classify costs as either fixed or variable over the last few years. But Tanner knows that fixed and variable cost distinctions are not always clear cut.
Required 1. Calculate Belmont Division’s contribution margin from transferring 10,000 units of R47 in 2007 if

(a) variable costs are $16.80 per unit, and

(b) variable costs are $19.20 per unit.
2. Evaluate whether Lasker’s suggestion to Tmner regarding variable costs is ethical. Would it be ethical for Tanner to revise the variable cost per unit? What steps should Tanner take to resolve this situation?
COLLABORATIVE LEARNING PROBLEM