=+19-30 KK Effect of different transfer-pricing methods on division operating profit OBJECTIVES 3, 4, 8 Healthy Harvest Ltd is a blackcurrant operation with two divisions: a Harvesting Division and a Processing Division. Currently, all of the Harvesting Division’s output is converted into blackcurrant juice by the Processing Division, and the juice is sold to large beverage companies that produce blackcurrant juice blends. The Processing Division has a yield of 500 litres of juice per 1000 kilograms of blackcurrants. Cost and market price data for the two divisions are as follows:

Chapter 19: Management control systems, transfer pricing and multinational considerations 753 M19_HORN3377_02_LT_C19.indd 753 2/09/13 4:05 PM 1

2 3

4 A CB D E Variable cost per kilogram of blackcurrants Fixed cost per kilogram of blackcurrants Selling price per kilogram of blackcurrants in outside market $0.60 Selling price per litre of juice $2.10 noisiviD gnitsevraH noisiviD gnissecorP

$0.10

$0.25 Variable processing cost per litre of juice produced $0.20 Fixed cost per litre of juice produced $0.40 Required 1 Calculate Healthy Harvest Ltd’s operating profit from harvesting 400000 kilograms of blackcurrants during June 2014 and processing them into juice.