QUESTION 6.

Division A of Tran Electronics manufactures screens used in HDTVs. It sells its one product, a standard screen, for $210 per screen. Variable costs are $90 per screen, and allocated fixed costs amount to $95 per screen. Division B has asked Division A to supply 5,000 custom-made screens. These custom-made screens have a variable cost of $105 per unit. Division A believes that both screens would consume the same amount of capacity to make. Division A currently has the capacity to make 20,000 screens annually.

Show your labelled computations for minimum price per custom screen that Division A can set for this transfer and not have its profit fall below the current level.

6-1. Division A is currently making 12,000 screens.

6-2. Division A is operating at capacity.

6-3. Division A is making and selling 16,000 standard screens currently. Division B wants to buy all 5,000 screens from Division A or none at all.