ChocTastic produces hot cocoa mix. The company has two divisions, each operating as a profit center. The transportation division purchases raw cocoa in the Ivory Coast and transports it to the mixing division in Atlanta, Georgia. The mixing division processes the raw cocoa into the cocoa mix. It takes two pounds of raw cocoa to yield one pound of cocoa mix. Variable and fixed costs per pound of raw cocoa in the transportation division and variable and fixed costs per pound of cocoa mix in the mixing division area as follows:

the market price for a pound of raw cocoa supplied to the mixing division in Atlanta is $27. ChocTastic can sell each pound of hot cocoa mix for $65.

ransportation Division
Price per pound of raw cocoa supplied in the Ivory Coast	$16
Variable transportation costs per pound of raw cocoa	$3
Fixed transportation costs per pound of raw cocoa	$3

Mixing Division
Variable mixing costs per pound of cocoa mix	$4
Fixed mixing costs per pound of cocoa mix	$4

Requirement 1. What are the minimum and maximum transfer prices per pound of raw cocoa transported to the mixing division at which both divisions are willing to transact with each other? Assume the transportation division has unused capacity to transport raw cocoa to the mixing division.

Minimum transfer price =	$19
Maximum transfer price =	$27

Part 2

Requirement 2. Refer to your answer in requirement 1. The management of

ChocTastic

is trying to decide on the specific transfer price within the bounds identified in requirement 1.

Jared Lawlor,

ChocTastic's

CEO, is suggesting to split the difference between the maximum and the minimum transfer price evenly. What is the transfer price under this scenario? What is the contribution margin per pound of raw cocoa for the transportation division? What is the contribution margin per pound of cocoa mix for the mixing division?

What is the transfer price under this scenario? (Round your answer to the nearest cent, X.XX.)

Under this scenario, the transfer price =

$23.00

Part 3

Under this scenario, what is the contribution margin per pound of raw cocoa for the transportation division? (Round your answer to the nearest cent, X.XX.)

Under this scenario, the contribution margin per pound of raw cocoa for the transportation division =

$4.00

Part 4

What is the contribution margin per pound of cocoa mix for the mixing division? (Round your answer to the nearest cent, X.XX.)

Under this scenario, the contribution margin per pound of cocoa mix for the mixing division =

$15.00

Part 5

Requirement 3.

Leslie Badu,

ChocTastic's

CFO, disagrees with

Jared Lawlor's

suggestion to split the difference evenly. She argues that the difference between the maximum and minimum transfer price should be prorated based on the value of the work contributed by each of the divisions to the final product.

a. What is the value of the work contributed by each of the divisions towards a pound of cocoa mix? Ignore fixed costs.

	Value of the work contributed towards a pound of cocoa mix (ignoring fixed costs)
Transportation	$6
Mixing	$4
Total	$10

Part 6

b. What is the transfer price if the difference between the maximum and the minimum transfer price (identified in requirement 1) is prorated based on the relative value of the work contributed by each of the divisions (identified in requirement 3a)? What is the contribution margin per pound of raw cocoa for the transportation division? What is the contribution margin per pound of cocoa mix for the mixing division?

What is the transfer price if the difference between the maximum and the minimum transfer price (identified in requirement 1) is prorated based on the relative value of the work contributed by each of the divisions (identified in requirement 3a)? (Do not round intermediary computations. Enter your final answer to the nearest cent, X.XX.)

Under this scenario, the transfer price =_______________

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