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Twyla Company is a multidivisional company. Its managers have full responsibility for profits and complete autonomy to accept or reject transfers from other divisions. Division
Twyla 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 subassembly part for which there is a competitive market. Division B currently uses this subassembly for a final product that is sold outside at $2,400. Division A charges Division B market price for the part, which is $1,540 per unit. Variable costs are $1,090 and $1,110 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. Assume that Division A can sell in the open market only 460 units at $1,540 per unit out of the 920 units that it can produce every month. Assume also that a 12% reduction in price is necessary to sell all 920 units each month. Compute the contribution margins under the following three different alternatives to support your decision. (Round intermediate calculations to 2 decimal places, e.g. 125.25 and final answers to O decimal places, e.g. 125.) Alternative 1: Maintain price, no transfers $ 207000 Alternative 2: Cut price, no transfers $ 243984 Alternative 3: Maintain price and transfers $ Should transfers be made? Yes If so, how many units should the division transfer and at what price? (If no transfer is necessary input 0 units at $0.) The division should tansfer 460 units at $ 1,090 to 1,110
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