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Durham Parts (DP) makes a variety of products. It is organized in two divisions, Eastern and Western. The managers for each division are paid, in
Durham Parts (DP) makes a variety of products. It is organized in two divisions, Eastern and Western. The managers for each division are paid, in part, based on the financial performance of their divisions. The Western Division normally sells to outside customers but, on occasion, also sells to the Eastern Division. When it does, corporate policy states that the price must be cost plus 25 percent to ensure a "fair" return to the selling division. Western received an order from Eastern for 1,200 units. Western's planned output for the year had been 4,800 units before Eastern's order. Western's capacity is 6,000 units per year. The costs for producing those 4,800 units follow. Per Unit Materials Total $ 240,000 $ 50 Direct labor 24 Other costs varying with output 115,200 76,800 288,000 16 60 Fixed costs (do not vary with output) Totals $ 720,000 $ 150 Required: a. If you are the manager of the Western Division, what unit cost would you ask the Eastern Division to pay? b. If you are the manager of the Eastern Division, what unit cost would you argue you should pay? c. What unit cost would you recommend for a sale of units from the Western Division to the Eastern Division? Complete this question by entering your answers in the tabs below. Required A Required B Required C What unit cost would you recommend for a sale of units from the Western Division to the Eastern Division? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Unit cost charged to the Eastern Division per unit
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