EXERCISE 12-15 (15 MINUTES)

2. Division A should transfer the 1,000 additional circuit boards to Division

B. Note that Division B’s processing adds $175 to each unit’s selling

price (B’s $300 selling price, less A’s $125 selling price = $175 increase),

but it adds only $100 in cost. Therefore, each board transferred to Divi-

sion B ultimately yields $75 more in contribution margin ($175 – $100 =

$75) to the company than can be obtained from selling to outside cus-

tomers. Thus, the company as a whole will be better off if Division A

transfers the 1,000 additional boards to Division B.