The Sandhill 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 $2,440. Division A charges division B market price for the part, which is $1,430 per unit. Variable costs are $1,020 and $1,180 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. 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?

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 530 of the 1,060 units it can produce every month, at $1,430 per unit. Assume also that a 20% reduction in price is necessary to sell all 1,060 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