Steinhoff Products, Inc., has a Sensor Division that manufactures and sells a number of products, including a standard sensor that could be used by another division in the company, the Safety Products Division, in one of its products. Data concerning that sensor appear below: The Safety Products Division is currently purchasing 4,000 of these sensors per year from an overseas supplier at a cost of $48 per sensor.
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) $76,000
B) $969,000
C) $120,000
D) $20,000

Question

Steinhoff Products, Inc., has a Sensor Division that manufactures and sells a number of products, including a standard sensor that could be used by another division in the company, the Safety Products Division, in one of its products. Data concerning that sensor appear below:  The Safety Products Division is currently purchasing 4,000 of these sensors per year from an overseas supplier at a cost of $48 per sensor.
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) $76,000 
B) $969,000 
C) $120,000 
D) $20,000

Quizplus · Accepted Answer

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