Hamlet Industries is organized into two divisions, Fabrication and Finishing. Both divisions are considered to be profit centers, and the two division managers are evaluated in large part on divisional income. The company makes a single product. It is manufactured in Fabrication and then packaged and sold in Distribution. There is no intermediate market for the product.

The monthly income statements, in thousands of dollars, for the two divisions follow. Production and sales amounted to 34,200 units.

	Fabrication ($000)	Distribution ($000)
Revenues	$ 5,130	$ 8,550
Variable costs	4,104	6,327
Contribution margin	$ 1,026	$ 2,223
Fixed costs	800	1,423
Divisional profit	$ 226	$ 800

Assume there is no special order pending.

Required:

a. What transfer price would you recommend for Hamlet Industries?

What transfer price would you recommend for Hamlet Industries?

Transfer price

b. Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of 34,200 units?

Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of 34,200 units?

Note: Enter your answers in whole dollars not in thousands of dollars.

	Fabrication	Distribution
Revenue
Variable costs
Contribution margin
Fixed costs
Divisional profit

c. The manager of the Fabrication Division complains about the transfer price, saying that division profits are unfairly low. The two division managers meet and negotiate a transfer price of $148. What will be the income of the two divisions, assuming monthly production and sales of 34,200 units.

The manager of the Fabrication Division complains about the transfer price, saying that division profits are unfairly low. The two division managers meet and negotiate a transfer price of $148. What will be the income of the two divisions, assuming monthly production and sales of 34,200 units.

Note: Enter your answers in whole dollars not in thousands of dollars.

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	Fabrication	Distribution
Revenue
Variable costs
Contribution margin
Fixed costs
Divisional profit