Consider Exhibit 22-5, which shows the responsibility margins for the Sales Department and Repairs Department profit centers at the 42nd Street store of NuTech Electronics. Assume that 25 percent of the Repairs Department repair work is done for the Sales Department and that the Repairs Department has been transferring its services to Sales at variable cost as the transfer price. Because the Repairs Department has a negative responsibility profit, assume the Repairs Department has asked the manager of the 42nd Street store to allow a transfer price that will earn the normal contribution margin that is earned on repair services to external customers.

Compute the new responsibility margins for the Sales and Repairs Departments if the store manager allows the new transfer price

Exhbit 22-5 shows

42nd street store sales department repairs department

Sales 200,000 180,000 20,000

Variable Cost 98,000 90,000 8,000

Contribution Margin 102,000 90,000 12,000

Fixed costs traceable 32,000 18,000 14,000

to departments

Departmental 70,000 72,000 (2,000)

Responsibility Margin

Common fixed costs 28,000

Responsibility Margin 42,000

for Store