7. The Rossi Company is decentralized, and divisions are considered investment centers. Rossi 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. (Click the icon to view additional information.) Read the requirements Requirement 1. Determine the total contribution margin for Rossi Company for the quarter. Number of units x Contribution margin per unit = Total contribution margin Chair Division Cushion Division Total Requirement 2. Assume the Chair Division purchases the 1,800 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 Contribution margin per unit = Total contribution margin Chair Division X = Cushion Division = Total Requirement 3. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current variable cost. What is the total contribution Print for each division and the company? (Enter "0" for any zero amounts.) Number of units 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 Rossi Company? The best option for Rossi is (1) By having the Chair Division purchase the cushions from an outside vendor, the company would generate (2) in total contribution margin than if the division purchases cushions internally. Requirement 5. Assume the Cushion Division has capacity of 3,600 cushions per quarter and can continue to supply its outside customers with 1,800 cushions per quarter and also supply the Chair Division with 1,800 cushions per quarter. What transfer price should Rossi Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter. because the Chair Division would not be willing to pay more than Rossi Company should set the transfer price at (3) Using the transfer price you determined, calculate the total contribution margin for the quarter. Print 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 Cushion Division-internal Total 1: More Info 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 1,800 chairs per quarter, and the Cushion Division is operating at capacity, which is 1,800 cushions per quarter. The two divisions report the following information: Chair Division Cushion Division $ $ 30 Sales Price per Chair Variable Cost (other than cushion) 90 Sales Price per Cushion 25 Variable Cost per Cushion 11 26 Variable Cost (cushion) $ 39 $ 19 Contribution Margin per Chair Contribution Margin per Cushion
