Part 1
Lowest acceptable transfer price formula:
Transfer price ≥ Variable cost +( Total contribution margin on lost sales per unit/ Number of units transferred) = 14+((23-14)*30000/30000) = $23
Maximum transfer price formula: Transferprice ≤ Cost of buying from outside supplier = $23 a ton less a 10% quantity discount of $2.30 = $20.70
Range: 20.70 ≤ transfer price ≤23
No, the managers of the Carton and Pulp Divisions are not likely to voluntarily agree to a transfer price for 30000 tons of pulp next year as pulp division is not ready to accept less than $70 and carton division is not ready to pay more $63
Part 2
Profits of the Pulp Division will decrease by (2.30*30000) |
$69000 |
Profits of the Carton Division will remains unchanged by |
0 |
Profits of the company as a whole will decrease by |
$69000 |
Part 3
Lowest acceptable transfer price formula:
Transfer price ≥ Variable cost +( Total contribution margin on lost sales per unit/ Number of units transferred) = 14+((0) /60000) = $14
Maximum transfer price formula: Transferprice ≤ Cost of buying from outside supplier = $23 a ton less a 10% quantity discount of $2.30 = $20.70
Range: 14 ≤ transfer price ≤20.70
Part 4 a
Yes, $19 is less than the Pulp Division's $20 "full cost" per unit, it is within the range 14 ≤ transfer price ≤20.70
Part 4 b
If the Pulp Division does not meet the $19 price, it will lose $150000 ((19-14)*30000) in potential profits.
Profit of the company will decrease by |
$150000 |
Part 5
No, it should explore the other outside options for better prices
Part 6
Pulp division’s increase in profit = (23-14)*30000 = $270000
Carton division’s decrease in profit = (23-19)*30000 = $120000
Company’s increase in profit = 270000-120000 = $150000
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: Selling price $ 21 Expenses: Variable $ 11 Fixed (based on a capacity of 95,000 tons per year) 6 17 Net operating income $ 4 Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: Selling price $ 25 Expenses: Variable $ 16 Fixed (based on a capacity of 97,000 tons per year) 6 22 Net operating income $ 3 Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: $20 $10 Selling price Expenses: Variable Fixed (based on a capacity of 97,000 tons per year) Net operating income 6 16 Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: Selling price $ 24 Expenses: Variable $ 14 Fixed (based on a capacity of 95,000 tons per year) 6 20 Net operating income $ 4 Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: $20 $10 Selling price Expenses : Variable Fixed (based on a capacity of 96,000 tons per year) Net operating income Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods Revenue and costs associated with a ton of pulp follow $12 Selling price Expenses: Variable Fixed (based on a capacity of 103,000 tons per year) Net operating income Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow Selling price Expenses Variable Fixed (based on a capacity of 100.000 tons per year) Net operating income Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: $21 $11 Selling price Expenses: Variable Fixed (based on a capacity of 95,000 tons per year) Net operating income 6 17 Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: $21 $11 Selling price Expenses: Variable Fixed (based on a capacity of 95,000 tons per year) Net operating income 6 17 Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed...
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: $ 20 Selling price Expenses: Variable Fixed (based on a capacity of 102,000 tons per year) Net operating income Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division...