2. The key is to realize that the $8 in fixed overhead and administrative
costs contained in the Brake Division’s $49.50 “cost” per brake unit is
not relevant. There is no indication that winning this contract would ac-
tually affect any of the fixed costs. If these costs would be incurred re-
gardless of whether or not the Brake Division gets the airplane brake
contract, they should be ignored when determining the effects of the
contract on the company’s profits. Another key is that the variable cost
of the Electrical Division is not relevant either. Whether the fittings are
used in the brake units or sold to outsiders, the production costs of the
fittings would be the same. The only difference between the two alter-
natives is the revenue on outside sales that is given up when the fittings
are transferred within the company.
Case 12-34 (continued)
Selling price of the brake units ... $50.00
Less:
The cost of the fittings used in the brakes (i.e. the
lost revenue from sale of fittings to outsiders)... $ 7.50
Variable costs of the Brake Division excluding the
fitting ($22.50 + $14.00)... 36.50 44.00
Net positive effect on the company’s profit... $ 6.00
Therefore, the company as a whole would be better off by $6.00 for
each brake unit that is sold to the airplane manufacturer.
Bạn đang xem 2. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH12 SEGMENT REPORTING AND DECENTRALIZATION
