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,

Profit Centers 42nd Street Store Sales Repairs Department Department Sales Variable costs. Contribution margin Fixed costs traceable to departments Departmental responsibility margin Common fixed costs Responsibility margin for store $200,000 $180,000 20,000 8,000 $102,000 $ 90,000 $ 12,000 14,000 98,000 90,000 32,000 70,000 72,000 28,000 18,000 $ 42,000