Question 1
Dual pricing is not widely used. Explain its disadvantages.
Question 2
The Microchip Division of Silicon Computers produces computer chips that are sold to the Personal Computer Division and to outsiders. Operating data for the Microchip Division for 20X5 are as follows:
| | Internal Sales | External Sales |
| Sales: | | |
| 300,000 chips at $10 | $3,000,000 | |
| 200,000 chips at $12 | | $2,400,000 |
| Variable expenses at $4 | 1,200,000 | 800,000 |
| Contribution margin | $1,800,000 | $1,600,000 |
| Fixed cost (allocated in units) | 1,500,000 | 1,000,000 |
| Operating income | $ 300,000 | $ 600,000 |
The Personal Computer Division has just received an offer from an outside supplier to furnish chips at $8.90 each. The manager of Microchip Division is not willing to meet the $8.90 price. She argues that it costs her $9.00 to produce and sell each chip. Sales to outside customers are at a maximum of 200,000 chips.
Required:
a. Verify the Microchip Division's $9.00 unit cost figure.
b. Should the Microchip Division meet the outside price of $8.90? Explain.
c. Could the $8.60 price be met and still show a profit for the Microchip Division sales to the Personal Computer Division? Show computations.
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