Health Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting's output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The processing division has a produce of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two divisions are as follows: Harvesting Division Processing Division Variable cost per pound of cranberries $0.10 Variable cost per gallon of juice produced $0.18 Fixed cost per pound of cranberries $030 Fixed cost per gallon of juice produced $0.35 Selling price per pound of cranberries in $0.68 Selling price per gallon of juice outside market $2.45 If processing division purchases cranberries from outside supplier, the price will be $0.15 per pound. Required: 1 What is the minimum transfer price at which the harvesting division willing to accept to sell cranberries to processing division if the harvesting division has idle capacity? 2. What is the minimum transfer price at which the harvesting division willing to accept to sell cranberries to processing division if the harvesting division has no idle capacity? 3. What is the maximum transfer price at which the processing division would be willing to purchase cranberries from the harvesting division?
Health Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting's output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The processing division has a produce of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two divisions are as follows: Harvesting Division Processing Division Variable cost per pound of cranberries $0.10 Variable cost per gallon of juice produced $0.18 Fixed cost per pound of cranberries $030 Fixed cost per gallon of juice produced $0.35 Selling price per pound of cranberries in $0.68 Selling price per gallon of juice outside market $2.45 If processing division purchases cranberries from outside supplier, the price will be $0.15 per pound. Required: 1 What is the minimum transfer price at which the harvesting division willing to accept to sell cranberries to processing division if the harvesting division has idle capacity? 2. What is the minimum transfer price at which the harvesting division willing to accept to sell cranberries to processing division if the harvesting division has no idle capacity? 3. What is the maximum transfer price at which the processing division would be willing to purchase cranberries from the harvesting division?
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter11: Performance Evaluation And Decentralization
Section: Chapter Questions
Problem 16BEA
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Transcribed Image Text:Health Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing
division. Currently, all of harvesting's output is converted into cranberry juice by the processing division, and
the juice is sold to large beverage companies that produce cranberry juice blends. The processing division has a
produce of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two
divisions are as follows:
Harvesting Division
Processing Division
Variable cost per pound of cranberries
$0.10
Variable cost per gallon of juice produced $0.18
Fixed cost per pound of cranberries
$0.30 Fixed cost per gallon of juice produced
$0.35
Selling price per pound of cranberries in $0.68 Selling price per gallon of juice
outside market
$2.45
If processing division purchases cranberries from outside supplier, the price will be $0.15 per pound.
Required:
1. What is the minimum transfer price at which the harvesting division willing to accept to sell cranberries to
processing division if the harvesting division has idle capacity?
2. What is the minimum transfer price at which the harvesting division willing to accept to sell cranberries to
processing division if the harvesting division has no idle capacity?
3. What is the maximum transfer price at which the processing division would be willing to purchase cranberries
from the harvesting division?
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