Reference no: EM133165090

Question - Snow Haven Ski Company has two divisions, Snow Division and Haven Division, which manufactures a mid-grade level set of skis with bindings. Snow produces the bindings, and Haven attaches the bindings to the skis for the complete product. There is a market for both the bindings on their own as well as the final products. Each division has been designated as a profit centre. The following data is available for each division:

Selling Price for the final product (skis with bindings) $290

Selling Price for the intermediate product (bindings) $150

Variable Cost to complete the skis with bindings in the Haven Division $160

Variable Cost in the Snow division (to make the bindings for outside customers) $100

The manager of Haven Division has made the following calculation:

Selling Price for the final product $290

Tranferred In Cost $150

Incremental Cost for Completion $160

Contribution (loss) on product ($20)

Required -

1. Assume that Snow Divisions maximum capacity for this product is 1,000 units per month, and sales to the intermediate market are currently 800 units per month. Should 100 units be transferred to Haven Division? If so, at what transfer price?

OR more specifically what is the range of transfer prices that you would consider to be reasonable? Why?

2. Suppose that Snow Division quoted a transfer price of $130 for up to 200 units. What would the contribution margin be to the company as a whole for these units if the transfer were made? If you were the manager of the Haven Division would you be inclined to by at $130? What is the benefit to the company from a qualitative perspective?