That Champions Division is robbing us blind! This statement by the director of the Tournament Division was heard during the meeting of the board of

“That Champions Division is robbing us blind!” This statement by the director of the Tournament Division was heard during the meeting of the board of directors at Golf-Brell Company. The company produces golf umbrellas in a two-step process. The Champions Division prepares the fabric tops and transfers them to the Tournament Division, which produces the ribs and handles, secures the tops, and packs all finished umbrellas for shipment. Because of the directors’ concern, the company controller gathered data for the past year, as shown in the following table:

During the year, 200,000 regular umbrellas and 150,000 deluxe umbrellas were completed and transferred or shipped by the two divisions. Transfer prices used by the Champions Division were as follows:
Regular ......$3.50
Deluxe ...... 6.00
The regular umbrella wholesales for $8.60 and the deluxe model for $22.00. Company administrative costs are allocated to divisions by a predetermined formula. Management has indicated that the transfer price should include a 20 percent profit factor on total division costs.
1. Prepare a performance report on the Champions Division.
2. Prepare a performance report on the Tournament Division.
3. Compute each division’s rate of return on controllable costs and on total division costs.
4. Do you agree with the statement made by the director of the Tournament Division? Explain your response.
5. What procedures would you recommend to the board ofdirectors?

Champions Division Tournament Division Sales Regular Deluxe $700,000 1,720,000 3,300,000 900,000 Direct materials Fabric tops (from Champions Division) Cloth Aluminum Closing mechanisms 1,600,000 360,000 Direct labor Variable overhead Fixed divisional overhead-avoidable Selling and general operating expenses 32,000 Company administrative expenses 660,000 1,560,000 540,000 240,000 210,000 372,000 108,000 480,000 90,000 150,000 84,000