The Rossi Company is decentralized, and divisions are considered investment centers. Rossi 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 info Read the requirements 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 1,400 chairs per quarter, and the Cushion Division is operating at capacity, which is 1,400 cushions per quarter. The two divisions report the following information: Requirement 1. Determine the total contribution margin for Rossi Company for the quarter. Cushion Division Number of units Contribution margin per unit Total contribution margin $ $ 20 Chair Division Sales Price per Chair Variable Cost (other than cushion) Variable Cost cushion) Chair Division 80 Sales Price per Cushion 42 Variable Cost per Cushion 15 8 Cushion Division $ 23 $ 12 Total Contribution Margin per Chair Contribution Margin per Cushion Requirement 2. Assume the Chair Division purchases the 1,400 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 Print Done Cushion Division Total Requirement 3. Assume the Chair Division purchases the 1,400 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 Rossi Company? The best option for Rossi is By having the Chair Division purchase the cushions from an outside vendor, the company would generate in total contribution margin than the division purchases cushions internally. Requirement 5. Assume the Cushion Division has capacity of 2,800 cushions per quarter and can continue to supply its outside customers with 1,400 cushions per quarter and also supply the Chair Division with 1,400 cushions per quarter. What transfer price should Rossi Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter. Rossi Company should set the transfer price at because the Chair Division would not be willing to pay more than Requirements 1. Determine the total contribution margin for Rossi Company for the quarter. 2. Assume the Chair Division purchases the 1,400 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 1,400 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 Rossi Company? 5. Assume the Cushion Division has capacity of 2,800 cushions per quarter and can continue to supply its outside customers with 1,400 cushions per quarter and also supply the Chair Division with 1,400 cushions per quarter. What transfer price should Rossi Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter
