Exercise 22-17 Twyla Company is a multidivisional company. Its managers have ful
ID: 2509473 • Letter: E
Question
Exercise 22-17 Twyla Company is a multidivisional company. Its managers have full responsibility for profits and complete autonomy to accept or reject transfers from other divisions. Division A produces a subassembly part for which there is a competitive market. Division D currently uses this subassembly for a final product that is sold outside at 2,400, Division A charges Dvision D market pnce for the part, which is s 1,500 per unit. variable costs are $1,100 and S 1,200 for Divisions A and respect vely s from other unt vaiable bile costs are 51 n B feels a lower p 8 is unable to make a profit. Calculate Division B's contribution margin if transfers are made at the market price, and calculate the company's total contribution margin. (Enter negative amounts use either a negative sign preceding the number eg -45 or parentheses eg (45).) Division B's contribution mnargin Campany's total contribution marginExplanation / Answer
Facts of the question:
Contention from Division B: Not able to make profit since the transfer price from Division A is high.
Solution:
A.) Contribution Margin for Division B:
Sales Price
$2,400
Less: Variable cost
$1,200
Less: Transfer Price paid to Division A
$1,500
Net Contribution
-$300
Company’s Total Contribution Margin:
Sales Price
$2,400
Less: Variable cost- Division A
$1,100
Less: Variable cost- Division B
$1,200
Net Contribution
$100
B). If the price available to Division A from Outside market is higher than the price received from Division B, it can sell the product out. If the price available is less than the price received from Division B, it should not sell the product out.
Sales Price
$2,400
Less: Variable cost
$1,200
Less: Transfer Price paid to Division A
$1,500
Net Contribution
-$300
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