More info The Chair Division currently purchases the cushions for $30 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 1,800 chairs per quarter, and the Cushion Division is operating at capacity, which is 1,800 cushions per quarter. The two divisions report the following information: Chair Division Cushion Division Sales Price per Chair $ 95 $ 34 Sales Price per Cushion Variable Cost per Cushion Variable Cost (other than cushion) 50 15 Variable Cost (cushion) 30 $ 15 $ 19 Contribution Margin per Chair Contribution Margin per Cushion Click the icon to view additional Information.) The Greco Company is decentralized, and divisions are considered investment centers. Greco has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, asserribles, and finishes the oak chairs and then purchases and attaches the seat cushions. Read the requirements Requirement 1. Determine the total contribution margin for Greco Company for the quarter. Number of units Contribution margin per unit Total contribution margin Chair Division Cushion Division Total Requirement 2. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division its current sales price. What is the total contribution margin for each division and the company? Number of units Contribution margin per unit Total contribution margin Chair Division x Cushion Division Total Requirement 3. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company? (Enter "O" for any zero amounts.) Number of units * Contribution margin per unit = Total contribution margin Chair Division Cushion Division Total Requirement 4. Review your answers for Requirements 1, 2, and 3. What is the best option for Greco Company? The best option for Greco is By having the Chair Division purchase the cushions from an outside vendor, the company would generate in total contribution margin than if the division purchases cushions internally. Requirement 5. Assume the Cushion Division has capacity of 3,600 cushions per quarter and can continue to supply its outside customers with 1,800 cushions per quarter and also supply the Chair Division with 1,800 cushions per quarter. What transfer price should Greco Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter. Greco Company should set the transfer price at because the Chair Division would not be willing to pay more than Using the transfer price you determined, calculate the total contribution margin for the quarter. Number of units Contribution margin per unit II = Total contribution margin Chair Division = II Cushion Division-external II = Cushion Division-internal II Total
