Detailed Answer
81. (c) The requirement is to determine whether Ajax
should take on a new customer and end its sales to the Bradley
division and why. As a profit center, Ajax will make the decision
independent of the effects on the corporation as a whole. If Ajax
sells to the new customer, its revenues will increase to $1,500,000
($75 × 20,000), but its costs will remain the same at $1,200,000
($900,000 + $300,000). This results in a positive gross margin of
$300,000 ($1,500,000 – $1,200,000). The new gross margin is
$600,000 [$300,000 – ( –$300,000)] greater than the original
gross margin. The shortcut (incremental) approach is to multiply
20,000 units times the $30 increase ($75 – $45) in Ajax’s unit
selling (transfer) price.