Reference no: EM133067477

Question - Stavos Company's Screen Division manufactures a standard screen for high-definition televisions (HDTVs). The cost per screen is:

Variable cost per screen	$121
Fixed cost per screen	34 *
Total cost per screen	$155
*Based on a capacity of 800,000 screens per year.

Part of the Screen Division's output is sold to outside manufacturers of HDTVs and part is sold to Stavos Company's Quark Division, which produces an HDTV under its own name. The Screen Division charges $193 per screen for all sales.

The net operating income associated with the Quark Division's HDTV is computed as follows:

Selling price per unit		$580
Variable cost per unit:
Cost of the screen	$193
Variable cost of electronic parts	232
Total variable cost		425
Contribution margin		155
Fixed costs per unit		83 *
Net operating income per unit		$72
*Based on a capacity of 150,000 units per year.

The Quark Division has an order from an overseas source for 5,000 HDTVs. The overseas source wants to pay only $401 per unit.

Required -

1. Assume the Quark Division has enough idle capacity to fill the 5,000-unit order. Is the division likely to accept the $401 price or to reject it?

2. Assume both the Screen Division and the Quark Division have idle capacity. Under these conditions, what is the financial advantage (disadvantage) for the company as a whole (on a per unit basis) if the Quark Division rejects the $401 price?

3. Assume the Quark Division has idle capacity but that the Screen Division is operating at capacity and could sell all of its screens to outside manufacturers. Under these conditions, what is the financial advantage (disadvantage) for the company as a whole (on a per unit basis) if the Quark Division accepts the $401 unit price?