The Ivanhoe 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 sub-assembly for a final product that is sold outside at $2,400. Division A charges division B market price for the part, which is $1,450 per unit. Variable costs are $1,020 and $1,240 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.

Calculate division Bs contribution margin if transfers are made at the market price, and calculate the companys total contribution margin. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Division Bs contribution margin		$enter a dollar amount
Companys total contribution margin		$enter a dollar amount

Assume that division A can sell all its production in the open market. Should division A transfer the goods to division B? select an option YesNo If so, at what price? (If no transfer should be made, please enter 0. Do not leave any fields blank.)

Transfer Price

$enter the transfer price in dollars

Compare the contribution margins under three different alternatives. Assume that division A can sell in the open market only 470 of the 940 units it can produce every month, at $1,450 per unit. Assume also that a 20% reduction in price is necessary to sell all 940 units each month. Assume transfers are made and the price is maintained.

Alternatives		Contribution Margin
Maintain price and no transfers		$enter a dollar amount
Cut price and no transfers		$enter a dollar amount
Maintain price and transfers		$enter a dollar amount

Should transfers be made? select an option YesNo If so, how many units should the division transfer and at what price?

Units transferred		enter a number of units	units
Price within the range		$enter a dollar amount	to $enter a dollar amount