The Atlantic Company is a multidivisional company. Its managers have full respon

Question

The Atlantic 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 sub-assembly part, for which there is a competitive market. Division B currently uses this sub-assembly for a final product that is sold outside at $2,400. Division A charges division B market price for the part, which is $1,450 per unit. Variable costs are $1,020 and $1,240 for divisions A and B, respectively. The manager of division B feels that division A should transfer the part at a lower price than market because, at market, division B 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 using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) Division B's contribution margin Company's total contribution margin. $

Explanation / Answer

Division A Division B Total Company Sales 1450 2400 Variable costs 1020 1240 Transfer costs 1450 Total costs 1020 2690 Contribution to income 430 -290 140 Division B's contribution margin = -290 Company's total contribution margin=$140

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