Green Yard Company, a division of Lawn Supplies, Inc., produces lawn mowers. Green Yard sells lawn mowers to home improvement stores, as well as to Lawn Supplies, Inc. The following information is available for Green Yard's mowers:
Lawn Supplies, Inc. can purchase comparable lawn mowers from an outside supplier for $340. In order to ensure a reliable supply, the management of Lawn Supplies, Inc. ordered Green Yard to provide 100,000 lawn mowers per year at a transfer price of $340 per unit. Green Yard is currently operating at full capacity. It could avoid $6 per unit of variable selling costs by selling internally.
Instructions
1. Compute the minimum transfer price that Green Yard should be required to accept.
2. Compute the increase (decrease) in contribution margin for Lawn Supplies, Inc. for this transfer.

Question

Green Yard Company, a division of Lawn Supplies, Inc., produces lawn mowers. Green Yard sells lawn mowers to home improvement stores, as well as to Lawn Supplies, Inc. The following information is available for Green Yard's mowers:  
Lawn Supplies, Inc. can purchase comparable lawn mowers from an outside supplier for $340. In order to ensure a reliable supply, the management of Lawn Supplies, Inc. ordered Green Yard to provide 100,000 lawn mowers per year at a transfer price of $340 per unit. Green Yard is currently operating at full capacity. It could avoid $6 per unit of variable selling costs by selling internally.
Instructions
1. Compute the minimum transfer price that Green Yard should be required to accept.
2. Compute the increase (decrease) in contribution margin for Lawn Supplies, Inc. for this transfer.

Quizplus · Accepted Answer

The Answer of Green Yard Company, a division of Lawn Supplies, Inc., produces lawn mowers. Green Yard sells lawn mowers to home improvement stores, as well as to Lawn Supplies, Inc. The following information is available for Green Yard's mowers:  
Lawn Supplies, Inc. can purchase comparable lawn mowers from an outside supplier for $340. In order to ensure a reliable supply, the management of Lawn Supplies, Inc. ordered Green Yard to provide 100,000 lawn mowers per year at a transfer price of $340 per unit. Green Yard is currently operating at full capacity. It could avoid $6 per unit of variable selling costs by selling internally.
Instructions
1. Compute the minimum transfer price that Green Yard should be required to accept.
2. Compute the increase (decrease) in contribution margin for Lawn Supplies, Inc. for this transfer.

Green Yard Company, a Division of Lawn Supplies, Inc