A T-shirt business has two divisions, Maker and Retailer. The division Maker produces T-shirts and sells them to the division Retailer, which sells each shirt to the end-customers.

You are provided the following information.

Retailers sales price to customer: $100 per unit (shirt)

Makers variable cost: $45 per unit

Retailers variable cost of sales commissions: $20 per unit

Volume per year: 20,000 units (note: that is, for each year, Maker sells 20,000 shirts to Retailer; then Retailer sells these 20,000 shirts to customers)

Fixed costs for Maker: $120,000 per year

Fixed costs for Retailer: $50,000 per year

Required

(1) Calculate the divisional profits for Maker and Retailer respectively; try two different prices that Maker sells Retailer the shirts. (8 marks)

Price 1: $70 per shirt;

Price 2: $50 per shirt.

(2) Comment on your calculation results; and discuss whether it is reasonable to assess performance of divisions primarily based on divisional profitability. (7 marks)