Problem 22.7A

Tots-To-Go, Inc.

b. After kearning abost Fusbright's business philowplyy, the rod division's director of markeing made the following sasternert: "Nick Fulleright may understand number, hut be docsn't understand the complementary refationstup between rods and recls, nor the wosvonat nature of our busioese" What did the director of marketing mean by this statemene? How might wich information influcnce Huthriphit's assessmeat of the coenpany's rid divisioe? c. By how moch would the rod division's noonthly sales have to increuse for is to generate a positive responsibility margin of 54,000 in any given montht Show all of your compatations. Tots-To-Go, Inc., has two divisions the seit dlvision and the stroller divisioa. The seat division supplies the seat frames ssed by the stroller division to make its strollers. The stroller diviSion prodaces approximately 10,000 strollers for yoang children annually. Thus, the stroller division receives 10,000 seat frames ansually from the seat division. The market price of these seat frames is $120. The total variable cont of the seat frames is $95 per unit, The market price of the strollers is $300. The unit variable cost of each stroller exelading the cost of the seat frame is $75. The seat divicion is currently operating at futl eapacity, producing 20.000 seat frames per year ( 10.000 of which are transferred to the stroller division). The demand for seat framies is so great that all 20.000 units could be sold to outside customers if the stroller division acquired sent frames from elsewhere. The seat division uses the full market price of $120 as the transfer price charged to the stroller division. The manager of the stroller division asserts that the seat division benefits from the intereompany transfer because of reduced shipping costs. As a result, he wants to negotiate a lower transer price of $10 per unit. Instructions a. Compute the contribution mangin earned annusally by cach division and by the company as a whole using the current transfer price. b. Compure the contribution margit that would be carned annually by each division and by the company as a whole if the descounted transfer price were used. c. What issules and concerns should be consideted in setting a transfer price for intercompany transfers of sears? Sparta and Associates produces trophies and has two divisions the green division and the white division. The green division produces the troply base, which it can well to outside markets for \$150. A trophy base has variable costs per unit of $65 and fixed costs of $100,000. based on