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) $ 8,000 5,920 $ 2,080 1,280 $ 800 Revenues Variable costs. Contribution margin Fixed costs Divisional profit $ 4,800 3,840 $960 800 $ 160 Assume there is no special order pending. Required: a. What transfer price would you recommend for Hamlet Industries? b. Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of 32,000 units? c. The manager of the Fabrication Division complains about the transfer price, saying that division profits are unfairly low. The two division managers meet and negotiate a transfer price of $148. What will be the income of the two divisions, assuming monthly production and sales of 32,000 units.
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) $ 8,000 5,920 $ 2,080 1,280 $ 800 Revenues Variable costs. Contribution margin Fixed costs Divisional profit $ 4,800 3,840 $960 800 $ 160 Assume there is no special order pending. Required: a. What transfer price would you recommend for Hamlet Industries? b. Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of 32,000 units? c. The manager of the Fabrication Division complains about the transfer price, saying that division profits are unfairly low. The two division managers meet and negotiate a transfer price of $148. What will be the income of the two divisions, assuming monthly production and sales of 32,000 units.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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)
$ 4,800
3,840
Distribution
($000)
$ 8,000
5,920
$ 2,080
1,280
$ 960
800
$ 160
$ 800
Revenues
Variable costs
Contribution margin
Fixed costs
Divisional profit
Assume there is no special order pending.
Required:
a. What transfer price would you recommend for Hamlet Industries?
b. Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of
32,000 units?
c. The manager of the Fabrication Division complains about the transfer price, saying that division profits are unfairly low. The two
division managers meet and negotiate a transfer price of $148. What will be the income of the two divisions, assuming monthly
production and sales of 32,000 units.
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