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 Requirement 1. Determine the total contribution margin for Costa Company for the quarter. Number of units Contribution margin per unit Chair Division Total contribution margin X Cushion Division x Total X Requirement 2. Assume the Chair Division purchases the 1,600 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 X Requirement 3. Assume the Chair Division purchases the 1,600 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 Cushion Division Total 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 By having the Chair Division purchase the cushions from an outside vendor, the company would generate in total contribution margin than if the division purchases cushions internally. Requirement 5. Assume the Cushion Division has capacity of 3.200 cushions per quarter and can continue to supply its outside customers with 1,600 cushions per quarter and also supply the Chair Division with 1,600 cushions per quarter. What transfer price should Costa Company set? Explain your Uns 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 Costa Company? The best option for Costa is argin that By having the Chair Division the current scenario (Requirement 1). division purchases cushions for the Chair Division to purchase cushions internally at the current sales price (Requirement 2) Requirement 5. Assume the cushions per quarter and als for the Chair Division to purchase cushions internally at the current variable cost (Requirement 3). Choose from any list or enter any number in the input fields and then continue to the next question. ers with 1 ? Explain Cushion Division Total 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 in total contribution margin th less By having the Chair Division purchase the cushions from an outside vendor, the company would generate division purchases cushions internally. Requirement 5. Assume the Cushion Division has capacity of 3,200 cushions per quarter and can continu cushions per quarter and also supply the Chair Division with 1,600 cushions per quarter. What transfer pric Choose from any list or enter any number in the input fields and then continue to the next question outside customers with Company set? Explais more More Info X 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 1,600 chairs per quarter, and the Cushion Division is operating at capacity, which is 1,600 cushions per quarter. The two divisions report the following information: Chair Division Cushion Division $ S 30 me e Sales Price per Chair Variable Cost (other than cushion) Variable Cost (cushion) w 90 40 22 Sales Price per Cushion Variable Cost per Cushion 17 28 $ 13 Contribution Margin per Chair Contribution Margin per Cushion Print Done iew your answers Tor Requiremems , hou vas te best optron Torcusta company Requirement 5. Assume the Cushion Division has capacity of 3,200 cushions per quarter and can continue to supply its outside customers with 1,600 cushions per quarter and also supply the Chair Division with 1,600 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 ats because the Chair Division would not be willing to pay more 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 X Chair Division Cushion Division-external x X Cushion Division-internal Total Choose from any list or enter any number in the input fields and then continue to the next question Requirement 5. Assume the Cushion Division has capacity of 3,200 cushions per quarter and can continue to supply its outside customers with 1,600 cushions per quarter and also supply the Chair Division with 1,600 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 the price for which it can purchase the cushions from an outside vendor the price for which the Cushion Division can sell the cushions to outside customers Chair UIVISION Cushion Division-external
