Question

required 3. only

Shaw is a lumber company that also manufactures custom cabinetry. It is made up of two divisions: Lumber and Cabinetry. The Lumbe Division is responsible for harvesting and preparing lumber for use, the Cabinetry Division produces custom ordered cabinetry. The lumber produced by the Lumber Division has a variable cost of $200 per linear foot and full cost of $3.00. Comparable quality wood sells on the open market for $6.00 per linear foot Required: 1. Assume you are the manager of the Cabinetry Division. Determine the maximum amount you would pay for lumber 2. Assume you are the manager of the Lumber Division Determine the minimum amount you would charge for the lumber if you have excess capacity. Repeat assuming you have no excess capacity 3. Assume you are the president of Show. Determine a mutually beneficial transfer price assuming there is excess capacity Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Assume you are the president of Shaw. Determine a mutually beneficial transfer price assuming there is excess capacity. Mutuality Beneficia Tritter Pro 2

Answer 1

ANSWER

3).

A mutually benefit transfer price is between the minimum ($2.00) and maximum ($6.00). If it were set at $3.00, the divisions would receive benefits equally from internal transfer.

The selling division makes $2.00 above variable costs ($3.00- $2.00), whereas the buying division saves $2.00 in the open market price ($6.00 - $3.00).

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