Question 3 The Atlantic Company is a multidivisional company Its managers have full responsibility for profits and complete autonomy to accept or reject transfers from other divisions Division A produces a sub assembly part for which there is a competitive market Division B currently uses this sub assembly for a final product that is sold outside at $2,400 Division A charges division B market price for the part, which is $1,370 per unit Variable costs are $1,060 and $1,230 for divisions A and B, respectively The manager of division B feels that division A should transfer the part at a lower price than market because, at market, division B is unable to make a profit Calculate division Bs contribution margin if transfers are made at the market price, and calculate the companys total contribution margin (Enter negative amounts using either a negative sign preceding the number e g 45 or parentheses e g (45) ) Division Bs contribution margin $ Companys total contribution margin $ Assume that division A can sell all its production in the open market Should division A transfer the goods to division B YesNo If so, at what price (If no transfer should be made, please enter 0 Do not leave any fields blank ) Transfer Price $ Compare the contribution margins under three different alternatives Assume that division A can sell in the open market only 490 of the 980 units it can produce every month, at $1,370 per unit Assume also that a 20 reduction in price is necessary to sell all 980 units each month Assume transfers are made and the price is maintained Alternatives Contribution Margin Maintain price and no transfers $ Cut price and no transfers $ Maintain price and transfers $ Should transfers be made YesNo If so, how many units should the division transfer and at what price Units transferred units Price within the range $ to $

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Question 3 The Atlantic Company is a multidivisional company. Its managers have full responsibility for profits and complete autonomy to accept or reject transfers from

Question 3

The Atlantic Company is a multidivisional company. Its managers have full responsibility for profits and complete autonomy to accept or reject transfers from other divisions. Division A produces a sub-assembly part for which there is a competitive market. Division B currently uses this sub-assembly for a final product that is sold outside at $2,400. Division A charges division B market price for the part, which is $1,370 per unit. Variable costs are $1,060 and $1,230 for divisions A and B, respectively. The manager of division B feels that division A should transfer the part at a lower price than market because, at market, division B is unable to make a profit.

Calculate division Bs contribution margin if transfers are made at the market price, and calculate the companys total contribution margin. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Division Bs contribution margin		$
Companys total contribution margin		$

Assume that division A can sell all its production in the open market. Should division A transfer the goods to division B?

YesNo

If so, at what price? (If no transfer should be made, please enter 0. Do not leave any fields blank.)

Transfer Price

Compare the contribution margins under three different alternatives. Assume that division A can sell in the open market only 490 of the 980 units it can produce every month, at $1,370 per unit. Assume also that a 20% reduction in price is necessary to sell all 980 units each month. Assume transfers are made and the price is maintained.