Consider Exhibit 22 5 which shows the responsibility margins for the
Consider Exhibit 22–5, which shows the responsibility margins for the SalesDepartment and Repairs Department profit centers at the 42nd Street store of NuTech Electronics. Assume that 25 percent of the Repairs Department repair work is done for the Sales Department and that the Repairs Department has been transferring its services to Sales at variable cost as the transfer price. Because the
Repairs Department has a negative responsibility profit, assume the Repairs Department has asked the manager of the 42nd Street store to allow a transfer price that will earn the normal contribution margin that is earned on repair services to external customers. Compute the new responsibility margins for the Sales and Repairs Departments if the store manager allows the new transfer price.
In Exhibit22–5,
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