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4. The records for the Venusian Division show the following data: The Venusian Division is evaluated on ROI and during the last fiscal year, the
4. The records for the Venusian Division show the following data: The Venusian Division is evaluated on ROI and during the last fiscal year, the Division ranked last among the twelve divisions of Volcano Industries. Venusian has an option to make an additional investment that would add $100,000 to the asset base. It would generate an additional $75,000 in sales revenue and incur $58,000 in additional expenses. Required: Should this investment be undertaken by Division management? Provide an appropriate explanation for your recommendation. (8 points) 5. Franklin Manufacturing Company has two divisions, X and Y. Division X prepares the steel for processing. Division Y processes the steel into the final product. No inventories exist in either division at the beginning or end of the year. During the year, Division X prepared 80,000 pounds of steel at a cost of $800,000. All the steel was transferred to Division Y where additional operating costs of $5 per pound were incurred. The transfer price for the steel has been $8 per pound for the past five years. The final product was sold for $3,000,000. Currently, Division X sales are entirely to Division Y. However, the manager of Division X has been exploring sales to outside organizations as a means to boost the division's operating income. Based on negotiations so far, the manager believes contracts for 100,000 pounds of steel could be secured, for the next fiscal year, at a selling price of $21 per pound. Required: As the manager of Division Y, what transfer price would you advocate for steel produced by Division X for the next fiscal year? Provide the analysis/argument for the transfer price recommended. (12 points)
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