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Grey Inc. has many divisions that are evaluated on the basis of ROI. One division, Centra, makes boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs the following costs for one box: Direct materials $0.35 Direct labor $0.60 Variable overhead $0.40 Fixed overhead $0.13 Total $1.48 Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives). Assume that Grey Inc. allows division managers to negotiate transfer price. Centra is producing 600,000 boxes. If Centra and Mantra agree to transfer boxes, what is the ceiling of the bargaining range and which division sets it? a.$1.80; Centra b.$1.35; Centra c.$1.48; Centra d.$1.80; Mantra e.$1.35; Mantra

Grey Inc. has many divisions that are evaluated on the basis of ROI. One division, Centra, makes boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs the following costs for one box: Direct materials $0.35 Direct labor $0.60 Variable overhead $0.40 Fixed overhead $0.13 Total $1.48 Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives). Assume that Grey Inc. allows division managers to negotiate transfer price. Centra is producing 600,000 boxes. If Centra and Mantra agree to transfer boxes, what is the ceiling of the bargaining range and which division sets it? a.$1.80; Centra b.$1.35; Centra c.$1.48; Centra d.$1.80; Mantra e.$1.35; Mantra

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
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Grey Inc. has many divisions that are evaluated on the basis of ROI. One division, Centra, makes boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs the following costs for one box: Direct materials $0.35 Direct labor $0.60 Variable overhead $0.40 Fixed overhead $0.13 Total $1.48 Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives). Assume that Grey Inc. allows division managers to negotiate transfer price. Centra is producing 600,000 boxes. If Centra and Mantra agree to transfer boxes, what is the ceiling of the bargaining range and which division sets it?

a.$1.80; Centra
b.$1.35; Centra
c.$1.48; Centra
d.$1.80; Mantra
e.$1.35; Mantra
 
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