Question

Problem 21-04A a-b, d (Video) Marigold Wizard is a publishing company with a number of different book lines. Each line has contracts with a number of different authors. The company also owns a printing operation called Quick Press. The book lines and the printing operation each operate as a separate profit center. The printing operation earns revenue by printing books by authors under contract with the book lines owned by Marigold Wizard, as well as authors under contract with other companies. The printing operation bills out at $0.01 per page, and a typical book requires 400 pages of print. A manager from Business Books, one of the Marigold Wizard’s book lines, has approached the manager of the printing operation offering to pay $0.006 per page for 1,500 copies of a 400-page book. The book line pays outside printers $0.008 per page. The printing operation's variable cost per page is $0.003. Determine whether the printing should be done internally or externally, and the appropriate transfer price, under each of the following situations.

Assume that the printing operation is booked solid for the next 2 years, and it would have to cancel an obligation with an outside customer in order to meet the needs of the internal division. (Round Transfer price to 2 decimal places, e.g. 0.18.)

Printing should be done		ExternallyInternally
Minimum transfer price		$

Assume that the printing operation has available capacity. (Round Transfer price to 3 decimal places, e.g. 0.189.)

Printing should be done		ExternallyInternally
Minimum transfer price		$

Calculate the change in contribution margin to each division, and to the company as a whole, if top management forces the printing operation to accept the $0.006 per page transfer price when it has no available capacity.

LossProfit to the printing operation		$
ProfitLoss to the business books		$
LossProfit to the company		$

Answer 1