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Should transfers be made to division b

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Reference no: EM132590354

Londe Co. has two divisions, A and B. For one of the company's products, Division A produces a major subassembly and Division B incorporates this subassembly into the final product. There is a market for both the subassembly and the final product.

The following data is available:

                                                            Per unit

Estimated selling price for final product          $400

Average market price for subassembly          $300

Variable cost in Division A                           $200

Additional variable cost for completion in Division B $250

Question 1: Should transfers be made to Division B if there is no excess capacity in Division A (i.e., all subassemblies can be sold outside)?

Question 2: Assume Division A's production capacity is 7,000 units, but sales to the intermediate market cannot surpass 5,000 units. Should 2,000 units be produced and transferred to Division B?

Reference no: EM132590354

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