Frocks and Gowns, Incorporated, Has Two Divisions, Day Wear and Night

question 128

Multiple Choice

Frocks and Gowns, Incorporated, has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $750,000 and produces and sells 100,000 units of Collars at a market price of $10.00 per unit. Variable costs for the Collars total $3.50 per unit and fixed charges are $4.00 per unit (based on a capacity of 120,000 units) . The Night Wear Division wants to purchase 25,000 units of Collars from the Day Wear Division. However, the Night Wear Division is only willing to pay $6.75 per unit.
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What is the contribution margin for the Day Wear Division without the transfer to the Night Wear Division?

• A) $250,000.
• B) $650,000.
• C) $675,000.
• D) $1,000,000.

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Definitions:

Dissenters' Rights

Legal provisions that allow shareholders to demand the corporation buy back their shares at a fair value if they do not agree with certain fundamental changes.

Short-form Mergers

A type of merger in which a parent company merges with its subsidiary where the parent already owns most of the subsidiary's shares, simplifying the process.

Voting Power

The rights of shareholders or members to vote on corporate or organizational matters.

Class Action

A type of lawsuit where one of the parties is a group of people who are represented collectively by a member of that group.