E8.17Twyla Company is a multidivisional company. It's managers have full responsibility for

profit and complete utonomy to accept or reject transfers from other divisions. Division A produces

a subassembly part for which there is a competitive market. Division B currently uses this subassembly

for a final product that is sold outside at$2,400. Division A charges Division B market price for the

part, which is$1,500per unit. Variable costs are$1,100and$1,200for Divisions A and B, respectively.

The manager of Division B feels that Division A should transfer the part at a lower price than market

because at market, Division B is unable to make a profit.

Part a Calculate Division B's contribution margin if transfers are made at the market price, and calculate

the company's total contribution margin.

Part b Assume that Division A can sell all its production in the open market. Should Division A transfer

the goods to Division B? If so, at what price?

Part c Assume that Divison A can sell in the open market only 500 units at $1,500 per unit of the

1,000 units that it can produce every month. Assume also that a 20% reduction in price is necessary to sell all

1,000 units each month.

Alternative 1: Maintain price, no transfer

Alternative 2: Cut price, no transfers

Alternative 3: Main price and transfers.

Should transfers be made

If so how many units at what price?