Required: a. What is the current transfer price for a unit? b. Does Tops Corporation want to accept this order? c. Will the Marketing Division manager be willing to accept this order if the transfer price is $200 per unit?
Tops Corporation is organized into two divisions, Manufacturing and Marketing. Both divisions are considered to be profit centers and the two division managers are evaluated in large part on divisional income. The company makes a single product. It is fabricated in Manufacturing and then packaged and sold in Marketing. There is no intermediate market for the product.
The monthly income statements, in thousands of dollars, for the two divisions follow. Production and sales amounted to 10,000 units.
| Manufacturing | Marketing | |||||||
| Revenues | $ | 3,000 | $ | 5,000 | ||||
| Variable costs | 2,400 | 3,700 | ||||||
| Contribution margin | $ | 600 | $ | 1,300 | ||||
| Fixed costs | 500 | 800 | ||||||
| Divisional profit | $ | 100 | $ | 500 | ||||
The company has just received an offer to buy 1,000 units of the product this month at a price of $400 per unit. The Marketing Division manager suggests that for the special order only, the transfer price be set at 50 percent of the sales price, or $200 per unit.
Required:
a. What is the current transfer price for a unit?
b. Does Tops Corporation want to accept this order?
c. Will the Marketing Division manager be willing to accept this order if the transfer price is $200 per unit?
d. Will the Manufacturing Division manager be willing to accept this order if the transfer price is $200 per unit?
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