The CBA 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 subassembly for a final product that is sold outside at $$600.$ Division A charges Division B market price for the part, which is $$350$ per unit. Variable costs are $$265$ and $$300$ 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.

Instructions

$($a$)$ Calculate Division B$\text{'}$s contribution margin if transfers are made at the market price, and calculate the company's total contribution margin.

$($b$)$ Assume that Division A can sell all its production in the open market. Should Division A transfer the goods to Division B$?$ If so$,$ at what price?

$($c$)$ Assume that Division A can sell in the open market only $250$ units at $$350$ per unit out of the $500$ units that it can produce every month. Assume also that a $20\%$ reduction in price is necessary to sell all $500$ units each month. Should transfers be made? If so$,$ how many units should the division transfer and at what price? To support your decision, submit a schedule that compares the contribution margins under three different alternatives.

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