Harisson Inc. owns fast food restaurants and snack food and beverage manufacturers in Canada. One of the restaurants, Pizza Place, serves a variety of beverages along with pizzas. One of the beverages is ginger beer, which is served on tap. Harisson has just purchased a new division, Cumberland Beverages, that produces ginger beer. The managing director of Cumberland Beverages has approached the managing director of Pizza Place about purchasing Cumberland Beverages ginger beer for sale at Pizza Place restaurants rather than its usual brand of ginger beer. Managers at Pizza Place agree that the quality of Cumberland Beverages ginger beer is comparable to the quality of their regular brand. It is just a question of price. The basic facts follow: Cumberland Beverages: Ginger beer production capacity per month 10,000 kegs Variable cost per keg of ginger beer $8 per keg Fixed costs per month $70,000 Selling price of Cumberland Beverages ginger beer on the outside market $20 per keg Pizza Place: Purchase price of regular brand of ginger beer $18 per keg Monthly consumption of ginger beer 2,000 kegs Required: compute and briefly explain the basis for: Selling division transfer price range with idle capacity Selling division transfer price range with no idle capacity Selling division transfer price range with some idle capacity Selling division’s lowest acceptable transfer price The purchasing division’s highest acceptable transfer price
Harisson Inc. owns fast food restaurants and snack food and beverage manufacturers in Canada. One of the restaurants, Pizza Place, serves a variety of beverages along with pizzas. One of the beverages is ginger beer, which is served on tap. Harisson has just purchased a new division, Cumberland Beverages, that produces ginger beer. The managing director of Cumberland Beverages has approached the managing director of Pizza Place about purchasing Cumberland Beverages ginger beer for sale at Pizza Place restaurants rather than its usual brand of ginger beer. Managers at Pizza Place agree that the quality of Cumberland Beverages ginger beer is comparable to the quality of their regular brand. It is just a question of price. The basic facts follow:
Cumberland Beverages:
Ginger beer production capacity per month 10,000 kegs
Variable cost per keg of ginger beer $8 per keg
Fixed costs per month $70,000
Selling price of Cumberland Beverages ginger beer
on the outside market $20 per keg
Pizza Place:
Purchase price of regular brand of ginger beer $18 per keg
Monthly consumption of ginger beer 2,000 kegs
Required: compute and briefly explain the basis for:
- Selling division transfer price range with idle capacity
- Selling division transfer price range with no idle capacity
- Selling division transfer price range with some idle capacity
- Selling division’s lowest acceptable transfer price
- The purchasing division’s highest acceptable transfer price
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