Nexa€™s Division A produces a product that can be sold for $200 or transferred to Division B as a component for its product. Division B can buy the part from another suppler at $180. In the current period, Division B purchased 1,000 units from Division B. Data on a per-unit basis follows:

The variable cost in Division B does not include the cost of the component provided by Division A or the outside supplier.

REQUIRED
A. Calculate the minimum transfer price if Division A is operating at capacity.
B. Calculate the minimum transfer price if Division A is operating below capacity.
C. Calculate the effect on the company€™s contribution margin if Division A has excess capacity and Division B buys 1,000 units from the outside supplier.
D. Calculate the contribution margin for the company for 1,000 units if Division A is required to sell to Division B when there is no excess capacity.
E. Calculate the contribution margin for the company if Division A is at capacity and sells 1,000 units to the external market and Division B purchases 1,000 units from an outside supplier.
F. Is it more profitable for the company to require Division A to transfer units to Division B?
Explain.
G. If there are no outside suppliers and Division A is operating at capacity, is the company better off to have Division A sell externally or internally? Show yourcalculations.

Transcribed Image Text:

Selling price Variable cost Allocated fixed cost Division A $200 100 90 Division B $600 200 159