Green Grass Co., a division of Lawn Supplies, Inc., produces lawn mowers. Green Grass sells its lawn

mowers to home improvement stores, as well as to Lawn Supplies, Inc. The following information is

available for Green Grass' mowers:

Fixed costs per unit $ 230

Variable cost per unit 150

Selling price per unit 500

Lawn Supplies, Inc. can purchase comparable lawn mowers from an outside supplier for $475. In order

to ensure a reliable supply, the management of Lawn Supplies, Inc. ordered Green Grass to provide

65,000 lawn mowers per year at a transfer price of $475 per unit. Green Grass is currently operating at

full capacity. It could avoid $10 per unit of variable selling costs by selling internally.

Instructions

a) Calculate the minimum transfer price that Green Grass should be required to accept.

b) Calculate the increase (decrease) in contribution margin for Lawn Supplies, Inc. for this transfer