Medical Equipment Ltd produces components for medical robotic equipment. It has two divisions, the motor division and the medical application division. The motor division currently manufactures 100,000 motors, selling 80,000 motors externally for $100 per motor and 20,000 to the medical application division for $50 per motor. The following table provides total details for the motors. Medical applications division External customers Transfer price/Sales 1,000,000 8,000,000 Variable costs (900,000) (3,600,000) Fixed costs (400,000) (1,200,000) Gross margin (300,000) 3,200,000 Unit sales 20,000 80,000 If the motor division negotiated a transfer price of $62.50 per motor, what would the contribution margin and profit margin for the internal transfer to the medical application division become? a. Contribution margin zero; Profit zero b. Contribution margin $20; Profit zero c. Contribution margin $35; Profit $300,000 d. Contribution margin $17.50; Loss $50,000
Medical Equipment Ltd produces components for medical robotic equipment. It has two divisions, the motor division and the medical application division. The motor division currently manufactures 100,000 motors, selling 80,000 motors externally for $100 per motor and 20,000 to the medical application division for $50 per motor. The following table provides total details for the motors.
|
|
Medical applications division |
External customers |
|
Transfer price/Sales |
1,000,000 |
8,000,000 |
|
Variable costs |
(900,000) |
(3,600,000) |
|
Fixed costs |
(400,000) |
(1,200,000) |
|
Gross margin |
(300,000) |
3,200,000 |
|
Unit sales |
20,000 |
80,000 |
If the motor division negotiated a transfer price of $62.50 per motor, what would the contribution margin and profit margin for the internal transfer to the medical application division become?
| a. |
Contribution margin zero; Profit zero |
|
| b. |
Contribution margin $20; Profit zero |
|
| c. |
Contribution margin $35; Profit $300,000 |
|
| d. |
Contribution margin $17.50; Loss $50,000 |
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