Hamlet Industries is organized into two divisions, Fabrication and Finishing. Both divisions are considered to be profit centers, and the two division managers are evaluated in large part on divisional income. The company makes a single product. It is manufactured in Fabrication and then packaged and sold in Distribution. There is no intermediate market for the product. The monthly income statements, in thousands of dollars, for the two divisions follow. Production and sales amounted to 32,000 units. Fabrication ($000) Distribution ($000) Revenues $ 4,800 $ 8,000 Variable costs 3,840 5,920 Contribution margin $ 960 $ 2,080 Fixed costs 800 1,280 Divisional profit $ 160 $ 800 The company has just received an offer to buy 3,200 units of the product this month at a price of $200 per unit. The Distribution Division manager suggests that for the special order only, the transfer price be set at 50 percent of the sales price, or $100 per unit. Required: What is the current transfer price for a unit?
Hamlet Industries is organized into two divisions, Fabrication and Finishing. Both divisions are considered to be profit centers, and the two division managers are evaluated in large part on divisional income. The company makes a single product. It is manufactured in Fabrication and then packaged and sold in Distribution. There is no intermediate market for the product.
The monthly income statements, in thousands of dollars, for the two divisions follow. Production and sales amounted to 32,000 units.
| Fabrication ($000) | Distribution ($000) | |
|---|---|---|
| Revenues | $ 4,800 | $ 8,000 |
| Variable costs | 3,840 | 5,920 |
| Contribution margin | $ 960 | $ 2,080 |
| Fixed costs | 800 | 1,280 |
| Divisional profit | $ 160 | $ 800 |
The company has just received an offer to buy 3,200 units of the product this month at a price of $200 per unit. The Distribution Division manager suggests that for the special order only, the transfer price be set at 50 percent of the sales price, or $100 per unit.
Required:
-
What is the current transfer price for a unit?
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