* 6 More Info - X The Dutton Company is decentralized, and divisions are considered investment centers. Dutton has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. Requirement 1. Determine the total contribution margin for Dutton Company for the quarter. The Chair Division currently purchases the cushions for $26 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 500 chairs per quarter, and the Cushion Division is operating at capacity, which is 500 cushions per quarter. The two divisions report the following information: Number of units X Contribution margin per unit = Total contribution margin Chair Division Cushion Division Chair Division $ $ 30 Cushion Division Sales Price per Chair Variable Cost other than cushion) 100 40 26 Sales Price per Cushion Variable Cost per Cushion Total Variable Cost cushion) Requirement 2. Assume the Chair Division purchases the 500 cushions needed from the Cushion Division at its current 34 20 Contribution Margin per Chair Contribution Margin per Cushion Number of units Contribution margin per unit = Total contribution margin Chair Division Cushion Division X x x Print Done Total The Dutton Company is decentralized, and divisions are considered investment centers. Dutton has one division (Click the icon to view additional information.) that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. Read the requirements. Requirement 2. Assume the Chair Division purchases the 500 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company? Number of units X Contribution margin per unit = Total contribution margin Chair Division Cushion Division Total Requirement 3. Assume the Chair Division purchases the 500 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company? (Enter "O" for any zero amounts.) Number of units X Contribution margin per unit = Total contribution margin Chair Division Cushion Division Total Requirement 4. Review your answers for Requirements 1, 2, and 3. What is the best option for Dutton Company? The best option for Dutton is By having the Chair Division purchase the cushions from an outside vendor, the company would generate in total contribution margin than if the division purchases cushions internally. (Click the icon to view additional information.) The Dutton Company is decentralized, and divisions are considered investment centers. Dutton has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. Read the requirements. Total Requirement 4. Review your answers for Requirements 1, 2, and 3. What is the best option for Dutton Company? The best option for Dutton is By having the Chair Division purchase the cushions from an outside vendor, the company would generate in total contribution margin than if the division purchases cushions internally. Requirement 5. Assume the Cushion Division has capacity of 1,000 cushions per quarter and can continue to supply its outside customers with 500 cushions per quarter and also supply the Chair Division with 500 cushions per quarter. What transfer price should Dutton Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter. Dutton Company should set the transfer price at $ L because the Chair Division would not be willing to pay more than Using the transfer price you determined, calculate the total contribution margin for the quarter. Number of units Contribution margin per unit = Total contribution margin Chair Division Cushion Division-external xxx x Cushion Division-internal Total
