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Elsinore Electronics is a decentralized organization that evaluates divisional management based on measures of divisional contribution margin. Home Audio (Home) Division and Mobile Electronics (Mobile)
Elsinore Electronics is a decentralized organization that evaluates divisional management based on measures of divisional contribution margin. Home Audio (Home) Division and Mobile Electronics (Mobile) Division both sell electronic equipment primarily for video and audio entertainment. Home focuses on home and personal equipment; Moblie focuses on components for automobile and other, nonresidential equipment. Home produces an audio player that t can sel to the outside market for $72 per unt. The outside market can absorb up to 87,000 units per year. These unts require 3 direct labor-hours each If Home modifies the units with an additional hour of labor time,R can sel them to Mobile for $81 per unit. Mobie wil accept up to 75,000 of these units per year. If Mobile does not obtain 75,000 units from Home, it purchases them for $34 each from the outside. Moble incurs $36 of addtional labor and other out-of-pocket costs to convert the player into one that fits in the dashboard and integrates with the automoble's audio system. The units can be sold to the outside market for $202 each Home estimates that ts total costs are $1,060,000 for foxed costs, $14.40 per direct labor-hour, and $7 20 per audio player for materials and other variable costs besides direct labor. ts capacity is limited to 375,000 direct labor-hours per year a. Total contribution margin to Home if it sells 87,000 units outside. Total contribution margin S 30 b. Total contribution margin to Home if it sells 75,000 units to Mobile. Total contribution marg (c) & (d). The costs to be considered in determining the optimal company policy for sales by Home. The annual contributions and costs for Home and Mobile under the optimal policy. Mobile Home Company Sales by Home to outside Sales by Home to Mobile Sales by Mobile to outside Total sales S 6,284,000 S 6,264,000 S 15,150,00015,150,000 S 8,284,000S 15,150,000S 21,414,000 Cost of labor in Home Cost of units transferred to Mobile Cost of units purchased from outside by Mobile Conversion cost in Mobile Contribution S 6,264,000 S 15,150,000S 21,414,000
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