Keepit Corporation has two divisions: Ottawa and Cornwall. Ottawa currently sells a condenser to manufacturers of cooli

[answerhappygod]

Keepit
Corporation has two divisions: Ottawa and Cornwall. Ottawa
currently sells a condenser to manufacturers of cooling systems for
$520 per unit. Variable costs amount to $380, and demand for
this product currently exceeds the division's ability to supply the
marketplace.






















Keepit is
considering another use for the condenser, namely, integration into
an enhanced refrigeration system that would be made by
Cornwall. Related information about the enhanced system
follows.

























Selling price of refrigeration system: $1,285











Additional variable manufacturing costs required: $820








Transfer
price of condenser: $490






























Top management
is anxious to introduce the enhanced system; however, unless the
transfer is made, an introduction will not be possible because of
the difficulty of obtaining condensers in the quality and quantity
desired. The company uses responsibility accounting and ROI
when measuring divisional performance, and awards bonuses to
divisional management.























Required:





































a.) How would Ottawa’s divisional manager likely react to the
decision to transfer condensers to Cornwall? Show
computations to support your answer.























b.) How would Cornwall’s divisional management likely react to the
$490 transfer price? Show computations to support your
answer.























c.) From a contribution margin perspective, does Keepit benefit
more if it sells the condensers externally or transfers the
condensers to Cornwall? By how much?