
Concept Introduction
Transfer Pricing: Transfer Pricing refers to setting the price (known as transfer price) at which the related divisions of a company transact with each other.
1.
The total contribution margin for Costa Company for the quarter.
2.
To Compute: The total contribution margin for Chair Division and Cushion Division and the company on assuming that the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current sales price.
3.
To Compute: The total contribution margin for Chair Division and Cushion Division and the company on assuming that the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current variable cost.
4.
The best option out of the three options as shown in Requirements 1, 2, and 3 for Costa Company.
5.
(i)
The transfer price that Costa Company should set when the Cushion Division has capacity of 3,600 cushions per quarter and can continue to supply its outside customers with 1,800 cushions per quarter and also supply the Chair Division with 1,800 cushions per quarter.
(ii)
To Compute: The total contribution margin for the quarter for the company, using the transfer price that is determined in above part (i).

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Chapter 24 Solutions
Horngren's Accounting
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