Bounous Company has two divisions, Division X and Division Y. Division X has a production capacity of 6,000 units of a particular part per month. Division X sells 4,600 units of the part each month to outside customers at a contribution margin of £36 per unit. Division Y would like to buy 2,000 units of the part each month from Division X. In computing the lowest acceptable transfer price from the perspective of the selling division, the lost contribution margin per unit portion of the transfer price computation would be

Question

Quizplus · Accepted Answer

The lost contribution margin per unit is the difference between the selling price and the variable cost per unit. In this case, the selling price is £36 and the variable cost per unit is £25.20. Therefore, the lost contribution margin per unit is £10.80.

Bounous Company Has Two Divisions, Division X and Division Y