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Sheffield Company is a multidivisional company. Its managers have full responsibility for profits and complete autonomy to accept or reject transfers from other divisions. Division

Sheffield 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 subassembly part for which there is a competitive market. Division B currently uses this subassembly for a final product that is sold outside at $2,440. Division A charges Division B market price for the part, which is $1,550 per unit. Variable costs are $1,050 and $1,120 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.

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Calculate Division Bs contribution margin if transfers are made at the market price, and calculate the companys total contribution margin. (Enter negative amounts use either a negative sign preceding the number eg -45 or parentheses eg (45).)
Division B's contribution margin $

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per unit
Companys total contribution margin $

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per unit

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

image text in transcribed NoYes

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Assume that Division A can sell in the open market only 540 units at $1,550 per unit out of the 1,080 units that it can produce every month. Assume also that a 10% reduction in price is necessary to sell all 1,080 units each month. Compute the contribution margins under following three different alternatives to support your decision. Calculate the Contribution Maring for Division A only. (Round intermediate calculations to 2 decimal places, e.g. 125.25 and final answers to 0 decimal places, e.g. 125.)
Alternative 1: Maintain price, no transfers $

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Alternative 2: Cut price, no transfers $

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Alternative 3: Maintain price and transfers $

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Should transfers be made?

image text in transcribed NoYes

If so, how many units should the division transfer and at what price? (If no transfer is necessary input 0 units at $0.) The division should tansfer

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units at $

image text in transcribed less than 1,05001,050 to 1,120more than 1,120

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