The Waddell Company is decentralized, and divisions are considered investment centers. Waddell specializes in sports equipment, and

Question:

The Waddell Company is decentralized, and divisions are considered investment centers. Waddell specializes in sports equipment, and one division manufactures netting that is used for basketball hoops, soccer goals, and other sports equipment. The Netting Division reports the following information for a heavy- duty basketball hoop net:

Sales Price per Unit .......................$ 18

Variable Cost per Unit .......................6

Contribution Margin per Unit .....$ 12

The Basketball Equipment Division can purchase a similar heavy- duty net from an outside vendor for $ 15.

Requirements

1. Determine the negotiable range for the transfer price.

2. What is the minimum transfer price the Netting Division should consider if operating at capacity? Below capacity?

3. What is the maximum transfer price the Basketball Equipment Division should consider?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...