The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $32 per unit. Variable costs for the casing are $19 per unit, and fixed cost is $4 per unit. Cotwold executives would like for the Molding Division to transfer 15,000 units to the Assembly Division at a price of $24 per unit. Assume that the Molding Division has enough excess capacity to accommodate the request. Required: Should the Molding Division accept the $24 transfer price proposed by management? Calculate the effect on the Molding Division's net income if it accepts the $24 transfer price.
The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $32 per unit. Variable costs for the casing are $19 per unit, and fixed cost is $4 per unit. Cotwold executives would like for the Molding Division to transfer 15,000 units to the Assembly Division at a price of $24 per unit. Assume that the Molding Division has enough excess capacity to accommodate the request. Required: Should the Molding Division accept the $24 transfer price proposed by management? Calculate the effect on the Molding Division's net income if it accepts the $24 transfer price.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division.
This casing is also sold to external customers for $32 per unit. Variable costs for the casing are $19 per
unit, and fixed cost is $4 per unit. Cotwold executives would like for the Molding Division to transfer
15,000 units to the Assembly Division at a price of $24 per unit. Assume that the Molding Division has
enough excess capacity to accommodate the request. Required: Should the Molding Division accept the
$24 transfer price proposed by management? Calculate the effect on the Molding Division's net income
if it accepts the $24 transfer price.
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