Transfer Prices at Full Cost with Excess Capacity: Divisional Viewpoint Karakomi Cameras Inc. has a Disposables Division that produces a camera that sells for $13.00 per unit in the open market. The cost of the product is $9.50 (variable manufacturing of $5.00, plus fixed manufacturing of $4.50). Total fixed manufacturing costs are $315,000 at the normal annual production volume of 70,000 units. The Overseas Division has offered to buy 20,000 units at the full cost of $9.50. The Disposables Division has excess capacity, and the 20,000 units can be produced without interfering with the current outside sales of 70,000 units. The total fixed cost of the Disposables Division will not change.

Karakomi Cameras, Inc. Disposables Division Unit Margins Current Sales Per Unit Total Sales Variables costs Contribution margin Fixed costs: 10 x Net income OX X $ Compute net income including the offer to purchase additional cameras. Do not use a negative sign with your answers. New Sales Per Unit Ox $ 0 X Total 0 x 0 X $ Grand Total OX OX Proposed Sales Sales Variable costs Contribution margin Fixed costs: Net income Ox $ OX OX 0 X