Crango Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting's output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The company calculated the operating income and the corresponding division managers' bonuses when 500,000 pounds of cranberries are harvested and processed into juice under two different transfer pricing methods Click to view the operating income and bonus data.) (Click to view additional Information.) Requirement 1. Give an example of a goal-congruence problem that will arise if Crango continues to use a transfer price of 200% of tull cost and Borges's decentralization policy is adopted. If a transfer price of 200% of full costs is mandated and Borges's decentralization policy is adopted the Processing Division manager will prefer to buy cranberries from This will Crango's overall operating income creating a goal-congruence problem prs out of the x pmpute the More info vozied during RO ha op JU BO Assume that Pat Borges, CEO of Crango, had mandated a transfer price equal to 200% of full cost. Now he decides to decentralize some management decisions and sends around a memo that states: "Effective immediately, each division of Crango is free to make its own decisions regarding the purchase of direct materials and the sale of finished products." Print Done DI Processing division: Revenues Costs Transferred-in costs Bonus calculations LIDIA Bonuses are equal to 2% of division operating income all of Sono to marge beverage comp. us that Fonding division managers' bonuses when sfer pricing methods: 200% of Full costs Market price $ 240,000 $ 340,000 Harvesting division: Revenues Costs Division variable costs ues to use a transfer price of 200% of full g Division fixed costs 20,000 100,000 120,000 20,000 100,000 120,000 220.000 pted the Processing Division manager will perating income creating a s 120,000 $ $ 2,400 $ 4,400 He suggests that transfers out of the pade at market price. Compute the s of cranberries are harvested during Total division costs Division operating income Division manager's bonus Processing division: Revenues Costs Transferred-in costs Division variable costs $ 562,500 $ 562,500 livision. 240,000 62,500 100,000 340,000 62,500 100,000 502,500 60,000 Division fixed costs 402.500 160,000 $ Total division costs Division operating income Division manager's bonus 1,200 S 3,200 $ Print Done Requirement 2. Borges feels that a dual transfer pricing policy will improve goal congruence. He suggests that transfers out of the harvesting division be made at 200% of full cost and transfers into the processing division be made at market price, Compute the operating income of each division under the dual transfer-pricing method when 500,000 pounds of cranberries are harvested during June 2020 and processed into juice Begin by computing the harvesting division's operating income, then compute the processing division Harvesting division Revenues Costs Division variable costs Division fixed costs Total Division costs Division operating income Processing division Revenues Costs Transferred-in costs Division variable costs Division fixed costs Total Division costs Division operating income Requirement 3. Why is the sum of the division operating incomes computed in requirement 2 different from Crango's operating income from harvesting and processing 500,000 pounds of cranberries? The company has already calculated their operating income from harvesting and processing 500,000 pounds of cranberries (Click to view the operating income.) UNIT DINTE harvesting's output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The company calculated the operating income and the corresponding division managers' bonuses when 500,000 pounds of cranberries are harvested and processed into juice under two different transfer pricing methods (Click to vie i (Click to vie Operating income calculation Read the require LIVING VAN Revenues $ 562,500 Costs Harvesting divison Variable costs Division fixed Total Divisio Division operati Processing divis Revenues Costs Transferred-in 20,000 100,000 Fixed costs 120,000 62,500 Total harvesting division costs Processing divsion Variable costs Fixed costs Total processing division costs Total costs 100,000 Division variat 162,500 Division fixed 282,500 Total Division $ 280,000 Division operatid Operating income perating income Requirement 3. from harvesting The company ha (Click to vie ries. Print Done out of the A dual transfer pro DA uy, harvesting's output is converted into cranberry juice by the processing division, and the juice is sold to large bevorage companies that produce cranberry juice blends. The company calculated the operating income and the corresponding division managers' bonuses when 500,000 pounds of cranberries are harvested and processed into juice under two different transfer pricing mothods (Click to view the operating income and bonus data.) (Click to view additional information) Read the requirements YOU Costs Transferred-in costs Division variable costs Division fixed costs Total Division costs Division operating income Requirement 3. Why is the sum of the division operating incomes computed in requirement 2 different from Crango's operating Income from harvesting and processing 500,000 pounds of cranberries? The company has already calculated their operating income from Harvesting and processing 500,000 pounds of cranberries. (Click to view the operating income.) A dual transfer pricing method entails using for transfers into the buying division and transfers out of the supplying division. As a result, the sum of division operating incomes equal the total company operating income. Requirement 4. Determine two problems that may arise if Crango implements the dual transfer prices described in requirement 2. It may reduce the incentives of the supplying division to control costs since the costs are transferred out at a higher amount than the actual costs incurred. It does not insulate the harvesting division manager from the frictions and the discipline of the marketplace because costs, not market prices, affect the revenues of the supplying division. A dual transfer pricing system does not provide clear signals to the individual divisions about the level of decentralization top management seeks