The Lyn Division of Rosal Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Mel Division. The following data have been gathered for the coming period: Lyn Division: Capacity 100,000 board feet Price per board foot P4.00 Variable production cost per board foot P2.00 Variable selling cost per board foot P0.70 Mel Division: Board feet needed 40,000 Outside price paid per board foot P3.50 If the Lyn Division sells to the Mel Division, P0.40 per board foot can be saved in shipping costs. If current outside sales are 70,000 board feet, what is the minimum transfer price that the Lyn Division could accept? If Lyn Division is operating at capacity, what is the effect on the company’s overall contribution margin?
The Lyn Division of Rosal Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Mel Division. The following data have been gathered for the coming period:
Lyn Division:
Capacity 100,000 board feet
Price per board foot P4.00
Variable production cost per board foot P2.00
Variable selling cost per board foot P0.70
Mel Division:
Board feet needed 40,000
Outside price paid per board foot P3.50
If the Lyn Division sells to the Mel Division, P0.40 per board foot can be saved in shipping costs.
- If current outside sales are 70,000 board feet, what is the minimum transfer price that the Lyn Division could accept?
- If Lyn Division is operating at capacity, what is the effect on the company’s overall contribution margin?
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