Java-Time Coffee Company is organized into two divisions. Division A roasts, blends, and Obj. 6 packages gourmet
Question:
Java-Time Coffee Company is organized into two divisions. Division A roasts, blends, and Obj. 6 packages gourmet coffees for sale to specialty shops and coffee bars. Division B designs and produces packaging materials for Division \(\mathrm{A}\) as well as for external customers. The cost of producing a pound of Java-Time specialty coffee is \(\$ 3.50\), including the transfer price of \(\$ 0.50\) for the packaging materials. The cost to Division B to design and produce packaging materials is \$0.35.
The manager of Division A has acquired a bid from an external producer that would reduce the cost of packaging materials by \(20 \%\). The reduced purchase price would significantly improve Division A's ROI.
What is motivating the manager of Division A to buy packaging materials from an outside supplier? Why might corporate-level managers at Java-Time Coffee Company encourage the manager of Division A to continue purchasing the packaging materials from Division B? Explain.
Step by Step Answer:
Managerial Accounting Information For Decisions
ISBN: 9780324222432
4th Edition
Authors: Thomas L. Albright , Robert W. Ingram, John S. Hill