Question

Problem 1-41 (Algo) Cost Dato for Managerial Purposes (LO 1-3) T-Comm makes a variety of products. It is organized in two divisions. North and South. The managers for each division are paid, in par based on the financial performance of their divisions. The South Division normally sells to outside customers but on occasion, also sells to the North Division. When it does, corporate policy states that the price must be cost plus 20 percent to ensure a "fair return to the selling division. South received an order from North for 300 units. South's planned output for the year had been 1.200 units before North's order. South's capacity is 1,500 units per year. The costs for producing those Per Unit $ 91 44 Total $189,200 52,800 33,600 528,000 $723,600 Materials Direct labor Other costs varying with output Fixed costs (do not vary with output) Total costs 28 440 $ 603 Required: a. If you are the manager of the South Division, what unit cost would you ask the North Division to pay? b. If you are the manager of the North Division, what unit cost would you argue you should pay? Complete this question by entering your answers in the tabs below. Required A Required B If you are the manager of the South Division, what unit cost would you ask the North Division to pay? (Do not round- intermediate calculations. Round your final answer to 2 decimal places.) Per unit cost (plus 20%) Required B >

Answer 1

Part a
	If you are the manager of South Division, you would like to the highest possible price within the company policy
	Since, South division has a capacity, to produce the additional 300, without impacting the capacity.
	It would be most profitable to charge Total Cost + 20% markup to North Division
	Particulars	Per Unit Amount
	Material	$91.00
	Labor	$44.00
	Other Cost	$28.00
	Fixed Cost	$440.00
	Total Cost	$603.00
	Markup 20%	$120.60
	Selling price for North Division's order	$723.60
Part b
	If you are the manager of North Division, you would like to keep the price lowest possible so that you keep your division's cost at lowest
	Since, South division has a capacity, to produce the additional 300, without impacting the capacity.
	You can argue for them to charge you only Variable Cost plus the markup, since there would be no additional Fixed Cost
	Particulars	Per Unit Amount
	Material	$91.00
	Labor	$44.00
	Other Cost	$28.00
	Total Cost	$163.00
	Markup 20%	$32.60
	Selling price for North Division's order	$195.60