Reference no: EM132553034

The ABC Company is a multidivisional company. Its managers have full responsibility for profits and done an 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 $2,350. Division A charges division B market price for the part, which is $1,390 per unit. Variable costs are $1,050 and $1,160 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.

Question 1: 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$ ?

Question 2: Assume that division A can sell all its production in the open market. Should division A transfer the goods to division B?

Yes

No