Alberta Company sells hiking boots as well as soles for work & hiking boots.
Two Divisions:
Sole Division sells soles externally.
Boot Division makes leather uppers for hiking boots which are attached to purchased soles.
Each Division Manager compensated on division profitability.
Management now wants Sole Division to provide at least some soles to the Boot Division.
Computation of the contribution margin per unit for each division when the Boot Division purchases soles from an outside supplier.
|
Boot Division |
Sole Division |
||
|
Selling price of hiking boots |
$90 |
Selling price of sole |
$18 |
|
Variable cost of manufacturing boot(not including sole) |
35 |
Variable cost per sole |
11 |
|
Cost of sole purchased from outside suppliers |
17 |
|
|
What would be a fair transfer price if the Sole Division sold 10,000 soles to the Boot Division?