Question

Comm Devices (CD) is a division of Worldwide Communications, Inc. CD produces restaurant pagers and other personal communication devices. These devices are sold to other Worldwide divisions, as well as to other communication companies. CD was recently approached by the manager of the Personal Communications Division regarding a request to make a special emergency-response pager designed to receive signals from anywhere in the world. The Personal Communications Division has requested that CD produce 11,700 units of this special pager. The following facts are available regarding the Comm Devices Division.

Selling price of standard pager		$93
Variable cost of standard pager		$54
Additional variable cost of special pager		$36

For each of the following independent situations, calculate the minimum transfer price, and determine whether the Personal Communications Division should accept or reject the offer.
(a)
The Personal Communications Division has offered to pay the CD Division $107 per pager. The CD Division has no available capacity. The CD Division would have to forgo sales of 9,360 pagers to existing customers in order to meet the request of the Personal Communications Division. (Note: The number of special pagers to be produced does not equal the number of existing pagers that would be forgone.) (Round answer to 2 decimal places, e.g. 125.36.)

Minimum transfer price

$enter the minimum transfer price in dollars rounded to 2 decimal places

Personal Communications Division should select an option reject/accept the offer.

(b)
The Personal Communications Division has offered to pay the CD Division $150 per pager. The CD Division has no available capacity. The CD Division would have to forgo sales of 15,600 pagers to existing customers in order to meet the request of the Personal Communications Division. (Note: The number of special pagers to be produced does not equal the number of existing pagers that would be forgone.)

Minimum transfer price

$enter the minimum transfer price in dollars

Personal Communications Division should select an option accept/reject the offer.

(c)
The Personal Communications Division has offered to pay the CD Division $102 per pager. The CD Division has available capacity.

Minimum transfer price

$enter the minimum transfer price in dollars

Personal Communications Division should select an option accept/reject the offer.

Answer 1

loss of regular sales (units) 9,360 а $39.00 contribution margin per regular unit total loss of contribution margin units of special pager loss of contribution margin per unit of special pager Variable cost of standard pager Additional variable cost of special pager $365,040 11,700 $31.20 $54.00 $36.00 $121.20 Minimum transfer price Personal Communications Division should reject the offer reason because the Minimum transfer price is more than the price offered by Personal Communications Division loss of regular sales (units) 15,600 $39.00 contribution margin per regular unit total loss of contribution margin $608,400 units of special pager loss of contribution margin per unit of special pager Variable cost of standard pager 11,700 $52.00 $54.00 Additional variable cost of special pager $36.00 $142.00 Minimum transfer price Personal Communications Division should the offer ассept reason because the Minimum transfer price is less than the price offered by Personal Communications Division

Variable cost of standard pager $54.00 + Additional variable cost of special pager $36.00 $ 90.00 Minimum transfer price the offer Personal Communications Division should ассept reason because the Minimum transfer price is less than the price offered by Personal Communications Division

In case you have any query, kindly ask in comments.

Answer 2

Where did you get 39 as the contribution margin per regular unit?