1. Amazon Beverages produces and bottles a line of soft drinks using exotic fruits from Latin America and Asia. The manufacturing process entails mixing and adding juices and coloring ingredients at the bottling plant, which is a part of Mixing Division. The finished product is packaged in a company-produced glass bottle and packed in cases of 24 bottles each.

Because the appearance of the bottle heavily influences sales volume, Amazon developed a unique bottle production process at the company's container plant, which is a part of Container Division. The Mixing Division uses all of the container plant's production. Each division (Mixing and Container) is considered a separate profit center and evaluated as such. As the new corporate controller, you are responsible for determining the proper transfer price to use for the bottles produced for Mixing Division.

At your request, Container Division's general manager asked other bottle manufacturers to quote a price for the number and sizes demanded by Mixing Division. These competitive prices follow:

Volume	Total Price			Price per Case
570,000 equivalent casesa	$	5,073,000		$	8.90
1,140,000		9,006,000			7.90
1,710,000		12,141,000			7.10

^a An equivalent case represents 24 bottles.

Container Division's cost analysis indicates that it can produce bottles at these costs:

Volume	Total Cost			Cost per Case
570,000 equivalent cases	$	4,219,000		$	7.40
1,140,000		7,468,000			6.55
1,710,000		10,717,000			6.27

These costs include fixed costs of $970,000 and variable costs of $5.70 per equivalent case. These data have caused considerable corporate discussion as to the proper price to use in the transfer of bottles from Container Division to Mixing Division. This interest is heightened because a significant portion of a division manager's income is an incentive bonus based on profit center results.

Mixing Division has the following costs in addition to the bottle costs:

Volume	Total Cost			Cost per Case
570,000 equivalent cases	$	1,970,000		$	3.46
1,140,000		2,770,000			2.43
1,710,000		3,570,000			2.09

The corporate marketing group has furnished the following price-demand relationship for the finished product:

Sales Volume	Total Sales Revenue			Sales Price per Case
570,000 equivalent cases	$	12,369,000		$	21.70
1,140,000		22,458,000			19.70
1,710,000		28,557,000			16.70

Required:

(a)	Amazon Beverages has used market price transfer prices in the past. Using the current market prices and costs and assuming a volume of 1.71 million cases, (Enter your answers in thousands of dollars.)

(1) Calculate operating profits for Container Division.

Calculate operating profits for Container Division.

(2)

Calculate operating profits for Mixing Division.

Calculate operating profits for Mixing Division.

(3)Calculate operating profits for Amazon Beverages.

Calculate operating profits for Amazon Beverages.

2. Skane Shipping Ltd. (SSL) operates a fleet of container ships in international trade between Sweden and Singapore. All of the shipping income (that is, that related to SSL's ships) is deemed to be earned in Sweden. SSL also owns a dock facility in Singapore that services SSL's fleet. Income from the dock facility is deemed to be earned in Singapore. SSL's income deemed attributable to Sweden is taxed at a 75 percent rate. Its income attributable to Singapore is taxed at a 25 percent rate. Last year, the dock facility had operating revenues of $10 million, excluding services performed for SSL's ships. SSL's shipping revenues for last year were $82 million.

Operating costs of the dock facility totaled $15 million last year and operating costs for the shipping operation, before deduction of dock facility costs, totaled $50 million. No similar dock facilities in Singapore are available to SSL.

However, a facility in Malaysia would have charged SSL an estimated $10 million for the services that SSL's Singapore dock provided to its ships. SSL management noted that had the services been provided in Sweden, the costs for the year would have totaled $23 million. SSL argued to the Swedish tax officials that the appropriate transfer price is the price that would have been charged in Sweden. Swedish tax officials determined that the Malaysian price is the appropriate one.

Required:

What is the difference in tax costs to SSL between the alternate transfer prices for dock services, that is, its price in Sweden versus that in Malaysia? (Do not round your intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Difference in taxes:

3. Valencia Products is a decentralized organization that evaluates divisional management based on measures of divisional contribution margin. Consumer Audio (CA) Division and Auto Electronics (AE) Division both sell audio equipment. CA focuses on home and personal audio equipment; AE focuses on components for automobile stereo systems. CA produces an audio player that it can sell to the outside market for $84 per unit. The outside market can absorb up to 70,000 units per year. These units require 4 direct labor-hours each.

If CA modifies the units with an additional hour of labor time, it can sell them to AE for $85 per unit. AE will accept up to 60,000 of these units per year.

If AE does not obtain 60,000 units from CA, it purchases them for $90 each from the outside. AE incurs $40 of additional labor and other out-of-pocket costs to convert the player into one that fits in the dashboard and integrates with the automobile's audio system. The units can be sold to the outside market for $225 each.

CA estimates that its total costs are $4,600,000 for fixed costs, $12 per direct labor-hour, and $6 per audio player for materials and other variable costs besides direct labor. Its capacity is limited to 400,000 direct labor-hours per year.

Required:

Determine the following:

(a)	Total contribution margin to CA if it sells 70,000 units outside.

(b)	Total contribution margin to CA if it sells 60,000 units to AE.

(c) & (d)	The costs to be considered in determining the optimal company policy for sales by CA.
	The annual contributions and costs for CA and AE under the optimal policy.