Question

(JUST NEED HELP WITH THE LAST REQUIRMENT 5 PLEASE) The Cutler Company is​ decentralized, and divisions are considered investment centers. Cutler has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division​ cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions.

The Chair Division currently purchases the cushions for

$ 26$26

from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells

1 comma 0001,000

chairs per​ quarter, and the Cushion Division is operating at​capacity, which is

1 comma 0001,000

cushions per quarter. The two divisions report the following​ information:

Chair Division			Cushion Division
Sales Price per Chair	$65		Sales Price per Cushion	$32
Variable Cost (other than cushion)	30		Variable Cost per Cushion	11
Variable Cost (cushion)	26
Contribution Margin per Chair	$9		Contribution Margin per Cushion	$21

Requirement 1. Determine the total contribution margin for

CutlerCutler

Company for the quarter.

	Number of units	x	Contribution margin per unit	=	Total contribution margin
Chair Division	1000	x	9	=	9000
Cushion Division	1000	x	21	=	21000
Total					30000

Requirement 2. Assume the Chair Division purchases the

1 comma 0001,000

cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the​ company?

	Number of units	x	Contribution margin per unit	=	Total contribution margin
Chair Division	1000	x	3	=	3000
Cushion Division	1000	x	21	=	21000
Total					24000

Requirement 3. Assume the Chair Division purchases the

1 comma 0001,000

cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the​ company? ​(Enter "0" for any zero​ amounts.)

	Number of units	x	Contribution margin per unit	=	Total contribution margin
Chair Division	1000	x	24	=	24000
Cushion Division	1000	x	0	=	0
Total					24000

Requirement 4. Review your answers for Requirements​ 1, 2, and 3. What is the best option for

CutlerCutler

​Company?

The best option for

CutlerCutler

is

the current scenario (Requirement 1).

the current scenario (Requirement 1).

for the Chair Division to purchase cushions internally at the current sales price (Requirement 2).

for the Chair Division to purchase cushions internally at the current variable cost (Requirement 3).

By having the Chair Division purchase the cushions from an outside​ vendor, the company would generate

more

less

more

in total contribution margin than if the division purchases cushions internally.

Requirement 5. Assume the Cushion Division has capacity of 2,000 cushions per quarter and can continue to supply its outside customers with

1,000 cushions per quarter and also supply the Chair Division with 1,000 cushions per quarter. What transfer price should Cutler

Company​ set? Explain your reasoning. Using the transfer price you​ determined, calculate the total contribution margin for the quarter.

Cutler Company should set the transfer price at $		because the Chair Division would not be willing to pay more than

Using the transfer price you​ determined, calculate the total contribution margin for the quarter.

	Number of units	x	Contribution margin per unit	=	Total contribution margin
Chair Division		x		=
Cushion Division—external		x		=
Cushion Division—internal		x		=
Total