A chair’s variable cost is $52 and its market value as a piece of unfinished furniture is $65 at a transfer point from the assembly division to the finishing division. The finishing division’s variable cost of sanding and finishing the chair is $26, and the selling price of the chair after sanding and finishing is $83.
1. Prepare a tabulation of the contribution margin per unit for the finishing division’s performance and overall company performance under the two alternatives of
(a) Selling to outsiders at the transfer point and
(b) Sanding and finishing the chair and then selling to outsiders.
2. As finishing division manager, which alternative would you choose? Explain.