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.
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