Reference no: EM132090072

Question: T-Comm makes a variety of products. It is organized in two divisions, North and South. South Division normally sells to outside customers but, on occasion, also sells to the North Division. When it does, corporate policy states that the price must be cost plus 20 percent to ensure a fair return to the selling division. South received an order from North Division for 300 units. South's planned output for the year had been 1.200 units before North's order. South's capacity is 1.500 units per year. The costs for producing those 1,200 units follow: Total Per Unit Materials Direct labor Other costs varying with output Fixed costs $115,200 $ 96 48 29 450 57,800 34,800 540,000 Total costs $747,600 623 Based on these data, South's controller calculated that the unit price for North's order should be $747.6 (= S623 x 120 percent). After producing and shipping the 300 units. South's sent an invoice for S224.280. Shortly thereafter. West received a note from the buyer at North's stating that this invoice was not in acoordance with Company policy. The unit cost should have been Materials Direct labor Other costs varying with output S 96 48 29 Total $173