The CutlerCutler Company is decentralized, and divisions are considered investment centers. CutlerCutler 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.

1.	Determine the total contribution margin for CutlerCutler Company for the quarter.
2.	Assume the Chair Division purchases the 500500 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 500500 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 CutlerCutler Company?
5.	Assume the Cushion Division has capacity of 1 comma 0001,000 cushions per quarter and can continue to supply its outside customers with 500500 cushions per quarter and also supply the Chair Division with 500500 cushions per quarter. What transfer price should CutlerCutler Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter.

The Chair Division currently purchases the cushions for

$ 25$25

from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells

500500

chairs per quarter, and the Cushion Division is operating atcapacity, which is

500500

cushions per quarter. The two divisions report the following information:

Chair Division			Cushion Division
Sales Price per Chair	$100		Sales Price per Cushion	$30
Variable Cost (other than cushion)	55		Variable Cost per Cushion	11
Variable Cost (cushion)	25
Contribution Margin per Chair	$20		Contribution Margin per Cushion	$19