Requirements The Costa Company is decentralized, and divisions are considered investment centers. Costa has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. ---- (Click the icon to view additional information.) Read the requirements. 1. Determine the total contribution margin for Costa Company for the quarter. 2. Assume the Chair Division purchases the 1,100 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company? 3. Assume the Chair Division purchases the 1,100 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company? 4. Review your answers for Requirements 1, 2, and 3. What is the best option for Costa Company? 5. Assume the Cushion Division has capacity of 2,200 cushions per quarter and can continue to supply its outside customers with 1,100 cushions per quarter and also supply the Chair Division with 1,100 cushions per quarter. What transfer price should Costa Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter. Requirement 1. Determine the total contribution margin for Costa Company for the quarter. Contribution margin per unit Chair Division Cushion Division Total Number of units x x = Total contribution margin = = Requirement 2. Assume the Chair Division purchases the 1,100 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company? Chair Division Cushion Division Total Number of units x Contribution margin per unit = Total contribution margin x = Requirement 3. Assume the Chair Division purchases the 1,100 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company? (Enter "0" for any zero amounts.) Chair Division Cushion Division Requirement 4. Review your answers for Requirements 1, 2, and 3. What is the best option for Costa Company? The best option for Costa is Number of units x Contribution margin per unit = Total contribution margin x = Requirement 5. Assume the Cushion Division has capacity of 2,200 cushions per quarter and can continue to supply its outside customers with 1,100 cushions per quarter and also supply the Chair Division with 1,100 cushions per quarter. What transfer price should Costa Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter. Costa Company should set the transfer price at because the Chair Division would not be willing to pay more than By having the Cha contribution margi Requirement 5. A customers with 1,1 should Costa Com margin for the qua the current scenario (Requirement 1). ition margin ce the price for which it can purchase the cushions from an outside vendor. for the Chair Division to purchase cushions internally at the current sales price (Requirement 2). the price for which the Cushion Division can sell the cushions to outside customers. for the Chair Division to purchase cushions internally at the current variable cost (Requirement 3). Costa Company s in Number of units Using the transfer price you determined, calculate the total contribution margin for the quarter. Contribution margin per unit = Total contribution margin = Chair Division Cushion Division-external Cushion Division-internal Total =