Question

The Raisin Division of Trail Mix Foods, Incorporated had the following operating results last year:

Sales (156,000 pounds of raisins)	$	71,760
Variable expenses		31,200
Contribution margin		40,560
Fixed expenses		15,000
Profit	$	25,560

Raisin expects identical operating results this year. The Raisin Division has the ability to produce and sell 206,000 pounds of raisins annually.

Assume that the Peanut Division of Trail Mix Foods wants to purchase an additional 26,000 pounds of raisins from the Raisin Division. Raisin will be able to increase its profit by accepting any transfer price above:

• $0.20 per pound.

• $0.10 per pound.

• $0.26 per pound.

• $0.46 per pound.

Answer 1

Raisin will be able to increase its profit by accepting any transfer price above the variable cost per pound = 31200/156000 = 0.20 per pound. Option A is the answer