Question

The Harris Company is decentralized, and divisions are considered investment centers. Harris 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 $22 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 800 chairs per quarter, and the Cushion Division is operating at capacity, which is 800 cushions per quarter. The two divisions report the following information: Chair Division Cushion Division Sales Price per Chair $85 Sales Price per Cushion $32 Variable Cost (other than cushion) 42 Variable Cost per Cushion 13 Variable Cost (cushion) 22 Contribution Margin per Chair $21 Contribution Margin per Cushion $19 Requirements 1. Determine the total contribution margin for Harris Company for the quarter. 2. Assume the Chair Division purchases the 800 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company?

Answer 1

Answer:

Explanation:

Sales Revenue:

Proceeds from sales of Chair Division = 800*85=68000

Proceeds from sales of Cusion Division = 800*32=25600

Transfer to chair division from cusion division = 800*32 = 25600

Total Sales Revenue = 119200

Variable Cost - VC

VC Chair Division (800*42) = (33600)

VC Cusion Division (1600*13)=(20800)

Transfer cost = (800*13)=(10400)

Total Contribution = 119200-33600-20800-10400=54400