Question: Lansing Electronics Inc. manufactures a variety of printers, scanners, and fax machines in its two divisions: the PSF Division and the Components Division. The Components
Component Y34 ..... $ 6.50
Direct materials ...... 12.50
Direct labor ....... 3.00
Variable overhead ..... 1.00
Fixed overhead ..... 15.00
Total unit cost ...... $38.00
The scanner is produced efficiently, and no further reduction in manufacturing costs is possible. The manager of the Components Division indicated that she could sell 40,000 units (the division’s capacity for this part) of Component Y34 to outside buyers at $12 per unit. The PSF Division could also buy the part for $12 from external suppliers. She supplied the following details on the manufacturing cost of the component:
Direct materials ...... $2.50
Direct labor ....... 0.50
Variable overhead ...... 1.00
Fixed overhead ....... 2.50
Total unit cost ...... $6.50
Required:
1. Compute the firmwide contribution margin associated with Component Y34 and Model SC67. Also, compute the contribution margin earned by each division.
2. Suppose that Cam DeVonn abolishes the current transfer pricing policy and gives divisions autonomy in setting transfer prices. Can you predict what transfer price the manager of the Components Division will set? What should be the minimum transfer price for this part? The maximum transfer price?
3. Given the new transfer pricing policy, predict how this will affect the production decision of the PSF Division manager for Model SC67. How many units of Component Y34 will the manager of the PSF Division purchase, either internally or externally?
4. Given the new transfer price set by the Components Division and your answer to Requirement 3, how many units of Y34 will be sold externally?
5. Given your answers to Requirements 3 and 4, compute the firmwide contribution margin. What has happened? Was Cam’s decision to grant additional decentralization good or bad?
Step by Step Solution
★★★★★
3.40 Rating (159 Votes )
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
1 Component Y34 Model SC67 Company Sales 260000 1680000 1940000 Variable expenses 1... View full answer

Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock
Document Format (1 attachment)

94-B-M-A-P-E (273).docx
120 KBs Word File