The Sunland 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 $1,392. Division A charges Division B the market price of $812 per unit of the part. Unit variable costs are $604 and $696 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.

The Sunland 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 $1,392. Division A charges Division B the market price of $812 per unit of the part. Unit variable costs are $604 and $696 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.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 17E: Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside...

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