Case Refer to the data in case A above. Assume that $3 per unit in variable sell
ID: 2486662 • Letter: C
Question
Case
Refer to the data in case A above. Assume that $3 per unit in variable selling costs can be avoided on intracompany sales.
Variable cost per unit
Less: Avoidable cost
Total contribution margin on lost sales
No. of units transferred
Transfer price
Case
A B Division X: Capacity in units 92,000 101,000 Number of units being sold to outside customers 92,000 81,000 Selling price per unit to outside customers $58 $33 Variable costs per unit $25 $17 Fixed costs per unit (based on capacity) $7 $5 Division Y: Number of units needed for production 20,000 20,000 Purchase price per unit now being paid to anoutside supplier $53 $34
Explanation / Answer
Variable Cost per unit
$ 25.00
Less: avoidable cost (saving of variable selling costs)
$ 3.00
Net variable cost if transferred to Dept. Y -(a)
$ 22.00
Loss of contribution per unit (58-25) - (b)
$ 33.00
(as in Case of A, dept. X is operating at full capacity)
Transfer price must be greater than or equal to (a+b)
$ 55.00
Variable Cost per unit
$ 25.00
Less: avoidable cost (saving of variable selling costs)
$ 3.00
Net variable cost if transferred to Dept. Y -(a)
$ 22.00
Loss of contribution per unit (58-25) - (b)
$ 33.00
(as in Case of A, dept. X is operating at full capacity)
Transfer price must be greater than or equal to (a+b)
$ 55.00