Question

Stavos Company’s Screen Division manufactures a standard screen for high-definition televisions (HDTVs). The cost per screen follows:

Variable cost per screen	$	124
Fixed cost per screen		28	*
Total cost per screen	$	152

*Based on a capacity of 840,000 screens per year.

Part of the Screen Division’s output is sold to outside manufacturers of HDTVs and part is sold to Stavos Company’s Quark Division, which produces an HDTV under its own name. The Screen Division charges $189 per screen for all sales.

The costs, revenue, and net operating income associated with the Quark Division’s HDTV are given below:

Selling price per unit			$	575
Variable cost per unit:
Cost of the screen	$	189
Variable cost of electronic parts		237
Total variable cost				426
Contribution margin				149
Fixed costs per unit				87	*
Net operating income per unit			$	62

*Based on a capacity of 240,000 units per year.

The Quark Division has an order from an overseas source for 5,000 HDTVs. The overseas source wants to pay only $406 per unit.

Required:

1. Assume the Quark Division has enough idle capacity to fill the 5,000-unit order. Is the division likely to accept the $406 price or to reject it?

2. Assume both the Screen Division and the Quark Division have idle capacity. Under these conditions, what is the financial advantage (disadvantage) for the company as a whole (on a per unit basis) if the Quark Division rejects the $406 price?

3. Assume the Quark Division has idle capacity but that the Screen Division is operating at capacity and could sell all of its screens to outside manufacturers. Under these conditions, what is the financial advantage (disadvantage) for the company as a whole (on a per unit basis) if the Quark Division accepts the $406 unit price.

Answer 1

Answer O Division individually will be reluctant to accept the order as Variable cost only for the division is more than the price quoted by the overseas sowie. Total variable cost – Electronic parts - Quark Division + sorcen division Variable cost = 237+124 =$361 financial Disadvantage of rejecting = offered selling price - total variable cost. - $ 406-$361 Р-45 рет игi t Amount Amount $406 Particular offerred selling price variable cost Ele foie. Paris - Quark Division Screen Division Variable cost Tolal variable cost Hinancial Disadvantag dr rejecting $ 237 $124 $ 36 $-45 perunit

al variable cast - Electronic parts - Quark Division + Screen Division variable cost + Screen Division contribcation Lost = 237 +124+(189-624) - 2371 244 65 -$426 financial Disadvantage d accepting = $406 – 436 = $-20 per unit I Amount Amount $406 $237 Particular offered selling price variable cost Electronic parts - Quark Division sercen Division Variable costum seveen Division Contribution lost Total variable cost financial Disadvantage d accepting $124 $65 $426. $-20 perunit