Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Complete questions 1 and 2. Phoenix Inc., a cellular communication company, has multiple business units, organized as divisions. Each division's management is compensated based on
Complete questions 1 and 2.
Phoenix Inc., a cellular communication company, has multiple business units, organized as divisions. Each division's management is compensated based on the division's operating income. Division A currently purchases cellular equipment from outside markets and uses it to produce communication systems. Division B produces similar cellular equipment that it sells to outside customers-but not to division A at this time. Division A's manager approaches division B's manager with a proposal to buy the equipment from division B. If it produces the cellular equipment that division A desires, division B will incur variable manufacturing costs of $60 per unit. Relevant information about Division B Sells 65,000 units of equipment to outside customers at $130 per unit Operating capacity is currently 80%, the division can operate at 100% Variable manufacturing costs are $70 per unit Variable marketing costs are $8 per unit Fixed manufacturing costs are $700,000 Income per Unit for Division A (assuming parts purchased externally, not internally from division B) $ 320 HD ooo Sales revenue Manufacturing costs: Cellular equipment Other materials Fixed costs Total manufacturing Gross margin Marketing costs: Variable Fixed Total marketing costs operating income per unit S 140 1. Division A wants to buy 31,000 units from division B at $75 per unit. Determine the contribution margin for each type sale by division B. Should division B accept or reject the proposal? How would your answer differ if (a) division A requires all 31,000 units in the order to be shipped by the same supplier and what would be the net operating loss or gain to division B and the firm as a whole, or (b) division A would accept partial shipment from division B and what would be the benefit from this alternative to division B? 2. What is the range of transfer prices over which the divisional managers might negotiate a final transfer price? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Reg 2 Division A wants to buy 31,000 units from division B at $75 per unit. Determine the contribution margin for each type sale by division B. Should division B accept or reject the proposal? To Division A Outside Selling Price Contribution Margin Should division B accept or reject the proposal
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started