The Hobson Company is decentralized, and divisions are considered investment centers. Cutler has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. The Chair Division currently purchases the cushions for $ 26$26 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 1,0001,000 chairs per quarter, and the Cushion Division is operating atcapacity, which is 1,0001,000 cushions per quarter. The two divisions report the following information:
Chair Division Cushion Division
Sales Price per Chair $65
Sales Price per Cushion $32
Variable Cost (other than cushion) 30
Variable Cost per Cushion 11
Variable Cost (cushion) 26
Contribution Margin per Chair $9
Contribution Margin per Cushion $21
Requirement
1. Determine the total contribution margin for
CutlerCutler
Company for the quarter.
Number of units x Contribution margin per unit = Total contribution margin
Chair Division 1000 x 9 = 9000
Cushion Division 1000 x 21 = 21000
Total 30000