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Division B has just developed a new product. Division Scan supply an intermediate product to Division B at a transfer price equal to the absorption
Division B has just developed a new product. Division Scan supply an intermediate product to Division B at a transfer price equal to the absorption cost of $10 per unit that includes a S4 fixed cost per unit and a $6 variable cost per unit. Assume that division S has idle capacity. Also, assume that division B has additional variable processing costs of S9 and that the sales price of the final product would be $16 per unit. Each division makes decisions that maximize their own profits. (Assume that there is no other source for the intermediate product.) Which statement is true O Division B will buy the intermediate product from Division since Division B will earn S1 in contribution margin on each unit of the new product. O Division B will not buy the intermediate product from Division S since Division B will lose S1 in contribution margin on each unit of the new product. Division B will not buy the intermediate product from Division S since Division B will lose S3 in contribution margin on each unit of the new product. O Division B will buy the intermediate product from Division S since Division B will earn $3 in contribution margin on each unit of the new product
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