Transfer Prices at Full Cost with Excess Capacity: Divisional Viewpoint Karakomi Cameras Inc. has a Disposables Division that produces a camera that sells for $10 per unit in the open market. The cost of the product is $5.50 (variable manufacturing of $3.00, and fixed manufacturing of $2.50). Total fixed manufacturing costs are $100,000 at the normal annual production volume of 40,000 units. The Overseas Division has offered to buy 10,000 units at the full cost of $5.50. The Disposables Division has excess capacity, and the 10,000 units can be produced without interfering with the current outside sales of 40,000 units. The total fixed cost of the Disposables Division will not change.

Explain whether the Disposables Division should accept or reject the offer. Show calculations.

Compute net income at normal annual production volume.

Do not use a negative sign with your answers.

Karakomi Cameras Inc.
Disposables Division Unit Margins
	Current Sales
	Per Unit	Total
Sales
Variables costs
Contribution margin
Fixed costs:
Net income

Compute net income including the offer to purchase additional cameras.

Do not use a negative sign with your answers.

			New Sales
Proposed Sales			Per Unit	Total	Grand Total
Sales
Variable costs
Contribution margin
Fixed costs:
Net income