The Greco Company is decentralized, and divisions are considered investment centers. Greco 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 Greco Company for the quarter. Chair Division Cushion Division Total Number of units Contribution margin per unit Total contribution margin M Requirement 2. Assume the Chair Division purchases the 1,100 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company? Chair Division Cushion Division Total Number of units Contribution margin per unit Total contribution margin More info The Chair Division currently purchases the cushions for $15 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 1,100 chairs per quarter, and the Cushion Division is operating at capacity, which is 1,100 cushions per quarter. The two divisions report the following information: Chair Division Sales Price per Chair Variable Cost (other than cushion) Cushion Division $ 85 Sales Price per Cushion 51 Variable Cost per Cushion $ 222 Variable Cost (cushion) 15 $ 19 $ 14 Contribution Margin per Chair Contribution Margin per Cushion Requirement 3. Assume the Chair Division purchases the 1,100 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company? (Enter "0" for any zero amounts.) Chair Division Number of units Contribution margin per unit = Total contribution margin Cushion Division Total Requirement 4. Review your answers for Requirements 1, 2, and 3. What is the best option for Greco Company? The best option for Greco is By having the Chair Division purchase the cushions from an outside vendor, the company would generate division purchases cushions internally. in total contribution margin than if the Requirement 5. Assume the Cushion Division has capacity of 2,200 cushions per quarter and can continue to supply its outside customers with 1,100 cushions per quarter and also supply the Chair Division with 1,100 cushions per quarter. What transfer price should Greco Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter. Greco Company should set the transfer price at because the Chair Division would not be willing to pay more than The best option for Greco is By having the Chair Division purchase the cushions from an outside vendor, the company would generate division purchases cushions internally. in total contribution margin than if the Requirement 5. Assume the Cushion Division has capacity of 2,200 cushions per quarter and can continue to supply its outside customers with 1,100 cushions per quarter and also supply the Chair Division with 1,100 cushions per quarter. What transfer price should Greco Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter. Greco Company should set the transfer price at 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. Chair Division Cushion Division-external Cushion Division-internal Total Number of units x Contribution margin per unit Total contribution margin = = The best option for Greco is By having the Chair Division division purchases cushions Requirement 5. Assume the cushions per quarter and als reasoning. Using the transfer in than the current scenario (Requirement 1). with 1, Explain y for the Chair Division to purchase cushions internally at the current sales price (Requirement 2). Greco Company should set t for the Chair Division to purchase cushions internally at the current variable cost (Requirement 3). Greco 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. tion margin