Frocks and Gowns, Incorporated, has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $750,000 and produces and sells 100,000 units of Collars at a market price of $10.00 per unit. Variable costs for the Collars total $3.50 per unit and fixed charges are $4.00 per unit (based on a capacity of 120,000 units). The Night Wear Division wants to purchase 25,000 units of Collars from the Day Wear Division. However, the Night Wear Division is only willing to pay $6.75 per unit.
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What is the contribution margin for the Day Wear Division without the transfer to the Night Wear Division?
A) $250,000.
B) $650,000.
C) $675,000.
D) $1,000,000.

Question

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The Answer of Frocks and Gowns, Incorporated, has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $750,000 and produces and sells 100,000 units of Collars at a market price of $10.00 per unit. Variable costs for the Collars total $3.50 per unit and fixed charges are $4.00 per unit (based on a capacity of 120,000 units). The Night Wear Division wants to purchase 25,000 units of Collars from the Day Wear Division. However, the Night Wear Division is only willing to pay $6.75 per unit.
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What is the contribution margin for the Day Wear Division without the transfer to the Night Wear Division?
A) $250,000.
B) $650,000.
C) $675,000.
D) $1,000,000.

Frocks and Gowns, Incorporated, Has Two Divisions, Day Wear and Night