# The Costa Company is decentralized, and divisions are considered investment centers. Costa has one division that manufactures

## Question:

Requirements

1. Determine the total contribution margin for Costa Company for the quarter.

2. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company?

3. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company?

4. Review your answers for Requirements 1, 2, and 3. What is the best option for Costa Company?

5. Assume the Cushion Division has capacity of 3,600 cushions per quarter and can continue to supply its outside customers with 1,800 cushions per quarter and also supply the Chair Division with 1,800 cushions per quarter. What transfer price should Costa Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter.

## Step by Step Answer:

**Related Book For**

## Horngrens Financial and Managerial Accounting

**ISBN:** 978-0133866292

5th edition

**Authors:** Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura