Brew, a local micro brewery, recently merged with a bottle making plant in New York to complement its local brewing facilities Brew has two divisions Bottle Making and Brewing Each division is evaluated as a profit centre Bottle Making Division The bottle making division makes cases of empty bottles and sells them on both the open market and to the brewing division Other information is as follows Capacity 340,000 cases Current Production 320,000 cases Market selling price $6 00 per case Variable costs $4 00 per case (based on current production) Fixed costs $1 80 per case (based on current production) Tax rate 25 Brewing Division The brewing division brews and bottles beer It buys empty bottles from both the bottle making division and the open market Other information is as follows Capacity 300,000 cases Current Production 260,000 cases Market selling price $40 00 per case Variable cost $28 00 per case (based on current production) Fixed cost $10 00 per case (based on current production) Tax rate 20 Note The Variable cost per case includes an estimated cost of $6 per case of bottles Each of these is a separate situation What is the minimum transfer price the bottle making division will sell an additional case of bottles to the brewery division What is the maximum transfer price the brewery division will buy an additional case of bottles from the bottling making division Both CRA and the IRS will accept a range of transfer prices between full cost and market price What is the optimal transfer price between the bottle making and brewing divisions in order to maximize overall profitability for the entire company Briefly explain your answer Current production for the Bottle division is based on estimated sales 170,000 cases on the open market and 150,000 cases to the brewery division The brewery division would like to purchase an additional 30,000 cases from the bottle division What is the minimum transfer prices per case the bottle making division will sell the additional 30,000 cases to the brewery division

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Brew, a local micro-brewery, recently merged with a bottle making plant in New York to complement its local brewing facilities. Brew has two divisions: Bottle

Brew, a local micro-brewery, recently merged with a bottle making plant in New York to complement its local brewing facilities. Brew has two divisions: Bottle Making and Brewing. Each division is evaluated as a profit centre.

Bottle Making Division

The bottle making division makes cases of empty bottles and sells them on both the open market and to the brewing division. Other information is as follows:

Capacity	340,000 cases
Current Production	320,000 cases
Market selling price	$6.00 per case
Variable costs	$4.00 per case (based on current production)
Fixed costs	$1.80 per case (based on current production)
Tax rate	25%

Brewing Division

The brewing division brews and bottles beer. It buys empty bottles from both the bottle making division and the open market. Other information is as follows:

Capacity	300,000 cases
Current Production	260,000 cases
Market selling price	$40.00 per case
Variable cost*	$28.00 per case (based on current production)
Fixed cost	$10.00 per case (based on current production)
Tax rate	20%

Note: The Variable cost per case includes an estimated cost of $6 per case of bottles

Each of these is a separate situation:

What is the minimum transfer price the bottle making division will sell an additional case of bottles to the brewery division?

What is the maximum transfer price the brewery division will buy an additional case of bottles from the bottling making division?

Both CRA and the IRS will accept a range of transfer prices between full cost and market price. What is the optimal transfer price between the bottle making and brewing divisions in order to maximize overall profitability for the entire company? Briefly explain your answer.

Current production for the Bottle division is based on estimated sales 170,000 cases on the open market and 150,000 cases to the brewery division. The brewery division would like to purchase an additional 30,000 cases from the bottle division. What is the minimum transfer prices per case the bottle making division will sell the additional 30,000 cases to the brewery division?