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15-121
Standard unit-level costs for Division B
25
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Randolph Company has two divisions organized as profit centers: Redmon and Tomlin.
Randolph expects the following results:
Redmon
Tomlin
Sales
Redmon: (10,000 ×
$16)
$1,600,000
Tomlin: (250,000 ×
$7.20)
$1,800,000
Variable costs
1,360,000
1,000,000
Contribution margin
$240,000
$800,000
Fixed costs
160,000
460,000
Profit
$80,000
$340,000
Included in Redmon's costs are 100,000 units of a subcomponent purchased from an
outside supplier for $4.50. The managers have recently initiated negotiations for Tomlin to
supply the components to Redmon. Tomlin has a total capacity of 400,000 units.
Required:
a. Prepare a new segment reporting statement for Randolph, assuming an internal transfer
at the maximum transfer price.
b. Prepare a new segment reporting statement for Randolph, assuming an internal
transfer at the minimum transfer price.
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