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The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division
The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $44 per unit. Variable costs for the casing are $31 per unit and fixed cost is $6 per unit. Cotwold executives would like for the Molding Division to transfer 27,000 units to the Assembly Division at a price of $38 per unit. Assume that the Molding Division has enough excess capacity to accommodate the request. Required: 1. Should the Molding Division accept the $38 transfer price proposed by management? Yes No 2. Calculate the effect on the Molding Division's net income if it accepts the $38 transfer price. Net Income
Expert Solution
| 1.) | The Molding division should accept the $38 transfer price because the relevant cost to manufacture is only $ 31 per unit & excess capacity is available. |
| 2.) | Net Income | Increase by | $ 189,000 | =27000*(38-31) |
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