Meers Products, Inc., has a Detector Division that manufactures and sells a number of products, including a standard detector that could be used by another division in the company, the Commercial Security Division, in one of its products. Data concerning that detector appear below: The Commercial Security Division is currently purchasing 7,000 of these detectors per year from an overseas supplier at a cost of $93 per detector.
Assume that the Valve Division is selling all of the valves it can produce to outside customers. From the standpoint of the Valve Division, what is the lost contribution margin if the valves are transferred internally rather than sold to outside customers?
A) $133,000
B) $469,000
C) $2,537,000
D) $413,000

Question

Meers Products, Inc., has a Detector Division that manufactures and sells a number of products, including a standard detector that could be used by another division in the company, the Commercial Security Division, in one of its products. Data concerning that detector appear below:  The Commercial Security Division is currently purchasing 7,000 of these detectors per year from an overseas supplier at a cost of $93 per detector.
Assume that the Valve Division is selling all of the valves it can produce to outside customers. From the standpoint of the Valve Division, what is the lost contribution margin if the valves are transferred internally rather than sold to outside customers?
A) $133,000 
B) $469,000 
C) $2,537,000 
D) $413,000

Quizplus · Accepted Answer

The total contribution margin on lost sales is computed as follows:
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