Larkey Company has two divisions, A and B. Division A manufactures 5,300 units o
ID: 2496928 • Letter: L
Question
Larkey Company has two divisions, A and B. Division A manufactures 5,300 units of product per month. The cost per unit is calculated as follows. Variable costs $ 7.30 Fixed costs 20.40 Total cost $ 27.70 Division B uses the product created by Division A. No outside market for Division A’s product exists. The fixed costs incurred by Division A are allocated headquarters-level facility-sustaining costs. The manager of Division A suggests that the product be transferred to Division B at a price of at least $27.70 per unit. The manager of Division B argues that the same product can be purchased from another company for $19.80 per unit and requests permission to do so.
Assume Division A transfers the product to Division B calculate the contribution margin per unit of Division A. (Round your answer to 2 decimal places.Omit the "$" sign in your response.)
If the proposal from the new company is accepted how much overall contribution margin per unit of Larkey Company be increased or decreased. Assuming fixed costs would remain constant. (Round your answer to 2 decimal places.Omit the "$" sign in your response.)
Required:Explanation / Answer
Contribution margin = selling price - variable cost
If they transfer at 27.7 , then contribution = Sales - Variable cost = 27.7 - 7.30 = 20.40
Total contribution = 20.4 * 5300 = 108120
If the company purchases the goods from outside , then total contribution is
Assume selling price is 27.7
variable cost of division A = 7.3
Variable cost of division B = 19.80
Contribution = 27.7 - 7.3 - 19.8 = 0.60 p.u
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.