Reference no: EM133035400

Question - A T-shirt business has two divisions, Maker and Retailer. The division Maker produces Tshirts and sells them to the division Retailer, which sells each shirt to the end-customers. You are provided the following information. Retailer's sales price to customer: $90 per unit (shirt) Maker's variable cost: $35 per unit Retailer's variable cost of sales commissions: $20 per unit Volume per year: 80,000 units (note: that is, for each year, Maker sells 80,000 shirts to Retailer; then Retailer sells these 80,000 shirts to customers) Fixed costs for Maker: $90,000 per year Fixed costs for Retailer: $60,000 per year.

Required -

(1) Calculate the divisional profits for Maker and Retailer respectively; try two different prices that Maker sells Retailer the shirts. Price 1: $40 per shirt; Price 2: $36 per shirt.

(2) Comment on your calculation results; and discuss whether it is reasonable to assess performance of divisions primarily based on divisional profitability.