1 Sunland Company makes swimsuits and sells these suits directly to retailers. Although Sunland has a variety of suits, it does not make the All-Body suit used by highly skilled swimmers. The market research department believes that a strong market exists for this type of suit. The department indicates that the All-Body suit would sell for approximately $ 100. Given its experience, Sunland believes the All-Body suit would have the following manufacturing costs.

	Direct materials		$ 25
	Direct labor		30
	Manufacturing overhead		45
	Total costs		$ 100

Correct answer icon

Your answer is correct.

Assume that Sunland uses cost-plus pricing, setting the selling price 30% above its costs. What would be the price charged for the All-Body swimsuit?

Selling price

$ enter the selling price assuming that cost-plus pricing is used with the selling price 30% above the costs

eTextbook and Media

Incorrect answer icon

Your answer is incorrect.

Assume that Sunland uses target costing. What is the price that Sunland would charge the retailer for the All-Body swimsuit?

Selling price

$ enter the selling price assuming that target costing is used

eTextbook and Media

Incorrect answer icon

Your answer is incorrect.

What is the highest acceptable manufacturing cost Sunland would be willing to incur to produce the All-Body swimsuit, if it desired a profit of $ 27 per unit? (Assume target costing.)

Target cost

$ enter the highest acceptable manufacturing cost

The Appraisal Department of Sunland Bank performs appraisals of business properties for loans being considered by the bank and appraisals for home buyers that are financing their purchase through some other financial institution. The department charges $167 per home appraisal, and its variable costs are $129 per appraisal. Recently, Sunland Bank has opened its own Home-Loan Department and wants the Appraisal Department to perform 1,220 appraisals on all Sunland Bank-financed home loans. Bank management feels that the cost of these appraisals to the Home-Loan Department should be $150. The variable cost per appraisal to the Home-Loan Department would be $8 less than those performed for outside customers due to savings in administrative costs. (a) Determine the minimum transfer price, assuming the Appraisal Department has excess capacity.

Minimum transfer price

$

(b) Determine the minimum transfer price, assuming the Appraisal Department has no excess capacity.

Minimum transfer price

$

(c) Assuming the Appraisal Department has no excess capacity, should management force the department to charge the Home-Loan Department only $150? No,Yes

Sunland Company is a multidivisional company. Its managers have full responsibility for profits and complete autonomy to accept or reject transfers from other divisions. Division A produces a subassembly part for which there is a competitive market. Division B currently uses this subassembly for a final product that is sold outside at $ 2,450. Division A charges Division B market price for the part, which is $ 1,510 per unit. Variable costs are $ 1,150 and $ 1,200 for Divisions A and B, respectively. The manager of Division B feels that Division A should transfer the part at a lower price than market because at market, Division B is unable to make a profit.

Calculate Division B's contribution margin if transfers are made at the market price, and calculate the company's total contribution margin. (Enter negative amounts use either a negative sign preceding the number eg -45 or parentheses eg (45).)

Division B's contribution margin		$ per unit
Company's total contribution margin		$ per unit

eTextbook and Media

Assume that Division A can sell all its production in the open market. Should Division A transfer the goods to Division B? NoYes