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.

Responsibility Margin

Sales department _________

Repairs department ________

EXHIBIT 22-5 Profit Centers Responsibility Income Statement for 42nd Street 42nd Street Sales Repairs Department Store Department Store $200,000 $180,000 Sales 20,000 Variable costs 98.000 90,000 8,000 Contribution margin $102,000 $12,000 90,000 14,000 Fixed costs traceable to departments 32,000 18,000 $ 70,000 $ (2,000) Departmental responsibility margin 72,000 Common fixed costs 28,000 $ 42,000 Responsibility margin for store