X More Info The Chair Division currently purchases the cushions for $26 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 1,500 chairs per quarter, and the Cushion Division is operating at capacity, which is 1,500 cushions per quarter. The two divisions report the following information: Chair Division Cushion Division $ Sales Price per Chair 75 Sales Price per Cushion 32 Variable Cost (other than cushion) 42 Variable Cost per Cushion 11 26 Variable Cost (cushion) $ 7 Contribution Margin per Cushion 21 Contribution Margin per Chair Print Done The Dutton Company is decentralized, and divisions are considered investment centers. Dutton 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 jcon to view additional information.) Read the reauirements Requirement 1, Determine the total contribution margin for Dulton Company for the quarter. Number of units xContribution marain per unit Total contribution margin Chair Division Cushion Division Total Requirement 2. Assume the Chair Division purchases the 1,500 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company? Contribution margin per unit Total contribution margin Number of units x Chair Division Cushion Division Tolal Requirement 3. Assume the Chair Division purchases the 1,500 cushions needed from the Cushion Division at its current variable cost What is the total contribution margin for each division and the company? (Enter "0" for any zero amounts.) Total contribution margin Number of units x Contribution margin per unit Chair Division Cushion Division Total Requirement 4. Review your answers for Requirements 1, 2, and 3. What is the best option for Dutton Company? The best option for Dutton is in tolal contribution margin than if the division purchases cushions internally. By having the Chair Division purchase the cushions from an outside vendor, the oompany would generale price shouid Dutton Company set? Explain vour reasoning. Using the transfer prico uou determined calculate the total contribution maroin for the o ns per quarter and also supply the Chair Division with 1.500 cushions per quarter. What transfer Dutton Company should set the transfer price at $ because the Chair Division would not be willing to pay more than Using the transfer price you determined, calculate the total ontribution margin for the quarter. Tolal contribution margin Number of units Contribution margin per unit Chair Division Cushion Division-external x Cushion Division-internal x Total - X i Requirements 1. Determine the total contribution margin for Dutton Company for the quarter. 2. Assume the Chair Division purchases the 1,500 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 1,500 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 Dutton Company? 5. Assume the Cushion Division has capacity of 3,000 cushions per quarter and can continue to supply its outside customers with 1,500 cushions per quarter and also supply the Chair Division with 1,500 cushions per quarter. What transfer price should Dutton Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter. Print Done
