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A chair manufacturer has two divisions: framing and upholstering. The framing costs are $100 per chair and the upholstering costs are $200 per chair. The company makes 5,000 chairs each year, which are sold for $500.
Required:
a. What is the profit of each division if the transfer price is $150?
b. What is the profit of each division if the transfer price is $200?
Answer:
a. Profit for framing cost- $50
Profit for upholstering- 150
b. Profit for framing cost- $100
Profit for upholstering- 100
