Cran 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

Required
1. Compute Cran Health's operating income from harvesting 480,000 pounds of cranberries during June 2017 and processing them into juice.
2. Cran Health rewards its division managers with a bonus equal to 6% of operating income. Compute the bonus earned by each division manager in June 2017 for each of the following transfer-pricing methods:
a. 225% of full cost
b. Market price
3. Which transfer-pricing method will each division manager prefer? How might Cran Health resolve any conflicts that may arise on the issue of transfer pricing?

Transcribed Image Text:

Harvesting Division Processing Division 2 3 Variable cost per pound of cranberries Fixed cost per pound of cranberries cost per gallon of juice produced$0 $0.30Fixed cost per gallon of juice produced $2.45