Return to Gogan Forest Products in Problem 9-9. Suppose that logs are processed in batches. Batch-related costs amount to $35,000 for the logs, $600 for batch-related costs including moving and setting up, and $11,000 for capacity-related costs, which are allocated to each batch on the basis of the machine time the batch uses. On average each batch produces
40,000 units of lumber
75,000 units of wood chips
65,000 units of sawdust
Ronnie is considering establishing a particle board facility in a foreign country. Ronnie would ship wood chips and sawdust, approximately 45,000 units of woodchips and 15,000 units of sawdust, from each to the foreign facility.
There is no market for wood chips or sawdust. Ronnie feels that the transfer price for wood chips and sawdust will have to be computed on a cost-plus basis. How would you compute the cost base for wood chips and sawdust? Make any assumptions you feel are necessary to answer this question.
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