Refer to the TK Electronics information in S8-15.
In S TK Electronics is a manufacturer with two departments: Computer Chips and Cell Phones.
The computer chip that is produced in the Chips Department can be sold to customers at $5.00 per chip. The costs associated with the computer chips are as follows:
Variable manufacturing costs...................................................................... $ 2.40
Variable selling and administrative costs.................................................... $ 0.80
Capacity........................................................................................... 500,000 units
Current production........................................................................... 500,000 units
The Cell Phone Department needs 90,000 computer chips but half of the Chips Department’s variable selling and administrative costs would still be incurred. Current production in the Chips Department is 400,000 chips.
Should a transfer take place? If so, at what price?
What other qualitative factors might need to be considered?