The Chair Division currently purchases the cushions for $22 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 800 chairs per quarter, and the Cushion Division is operating at capacity, which is 800 cushions per quarter. The two divisions report the following information: Chair Division Cushion Division $ $ Sales Price per Chair Variable Cost (other than cushion) 85 Sales Price per Cushion 42 Variable Cost per Cushion 22 32 13 Variable Cost (cushion) $ $ Contribution Margin per Chair 21 $ 19 Contribution Margin per Cushion 1. Determine the total contribution margin for Harris Company for the quarter. 2. Assume the Chair Division purchases the 800 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 800 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 Harris Company? 5. Assume the Cushion Division has capacity of 1,600 cushions per quarter and can continue to supply its outside customers with 800 cushions per quarter and also supply the Chair Division with 800 cushions per quarter. What transfer price should Harris 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 Harris Company for the quarter. Number of units X Contribution margin per unit Total contribution margin Chair Division x Cushion Division Total Requirement 2. Assume the Chair Division purchases the 800 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company? Number of units Contribution margin per unit Total contribution margin Chair Division Cushion Division Total oak chairs and then purchases and attaches the seat cushions. Requirement 3. Assume the Chair Division purchases the 800 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company? (Enter "O" for any zero amounts.) Number of units x Contribution margin per unit Total contribution margin Chair Division X Cushion Division Total Requirement 4. Review your answers for Requirements 1, 2, and 3. What is the best option for Harris Company? The best option for Harris is in total By having the Chair Division purchase the cushions from an outside vendor the company would generate contribution margin than if the division purchases cushions internally. Requirement 5. Assume the Cushion Division has capacity of 1,600 cushions per quarter and can continue to supply its outside customers with 800 cushions per quarter and also supply the Chair Division with 800 cushions per quarter. What transfer price should Hamis Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter because the Chair Division would not be willing to pay more Harris Company should set the transfer price at than Using the transfer price you determined, calculate the total contribution margin for the quarter. Number of units Contribution margin per unit Total contribution margin 11 Chair Division Cushion Division-external Cushion Division internal Total Chance in the Innut fialde and then continue to the next nestinn
