Question

Manhattan Corporation has several divisions that operate as decentralized profit centers. At the present time, the Fabrication Division has excess capacity of 6,000 units with respect to the UT-371 circuit board, a popular item in many digital applications. Information about the circuit board is presented next.

Market price = $50

Variable selling/distribution costs on external sales = $7

Variable manufacturing cost = $23

Fixed manufacturing cost = $12

Manhattan's Electronic Assembly Division wants to purchase 5,500 circuit boards either internally or else use a similar board in the marketplace that sells for $47. The Electronic Assembly Division's management feels that if the first alternative is pursued, a price concession is justified, given that both divisions are part of the same firm. To optimize the overall goals of Manhattan, what is the minimum price to be charged for the board from the Fabrication Division to the Electronic Assembly Division?

Please do not copy from Chegg. I need an orginal answer with propert explanation with step by step explanation.

Answer 1

Margin Statement

Particulars	Amount $
Market Price per Unit	50
Variable Cost per unit	(23)
Contribution Margin	27
Fixed Cost per unit	12
Gross Margin	15
Selling and Distribution per unit	7
Net Margin	8

Fabrication Division saves $7 per unit of Selling and Distribution by selling the product UT-371 to Electronic Assembly Division. Therefore, a concession of $7 can be provided to the Electronic Assembly Division and still achieve the overall margin of the department. The price quoted to the Electronic Assembly Division should be $43 per unit of UT-371.