Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Culver Consolidated has several divisions, two of which transfer their products to other divisions. The Mining division refines toldine, which it then transfers to

image text in transcribedimage text in transcribed

Culver Consolidated has several divisions, two of which transfer their products to other divisions. The Mining division refines toldine, which it then transfers to the Metals division. The Metals division processes the toldine into an alloy and sells it to customers at a price of $155 per barrel. Culver currently requires the Mining division to transfer its total annual output of 417,100 barrels of toldine to the Metals division at total manufacturing cost plus 10%. Unlimited quantities of toldine can be purchased and sold on the open market at $94 per barrel. While the Mining division could sell all the toldine it produces on the open market at $94 per barrel, it would incur a variable selling cost of $5 per unit to do so. Barker Jonas, manager of the Mining division, is unhappy with having to transfer the division's entire output of toldine to the Metals division at 110% of cost. In a meeting with the management of Culver, he protested, "Why should my division be required to sell toldine to the Metals Division at less than market price? For the year just ended in May, Metals' contribution margin was over $21 million on sales of 417,100 barrels, while Mining's contribution on the transfer of the same number of units was just over $5 million. My division is subsidizing the profitability of the Metals division. We should be allowed to charge market price for toldine when we transfer it to the Metals division." Detailed unit costs for both the Mining and Metals divisions follow. Mining Metals Division Division Transfer price from Mining division $66 Direct material $11 8 Direct labor 16 20 Manufacturing overhead 33 24 Total cost per barrel $60 $118 Manufacturing overhead cost in the Mining division is 25% fixed and 75% variable. In the Metals division, it is 60% fixed and 40% variable.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fraud Examination

Authors: W. Steve Albrecht, Conan C. Albrecht, Chad O. Albrecht, Mark F. Zimbelman

3rd edition

324560842, 978-0324560848

More Books

Students also viewed these Accounting questions

Question

What is the solution set of the equation? 2x+6=x+3

Answered: 1 week ago

Question

What are the general principles of valuation for by-products? LO.1

Answered: 1 week ago