Current Attempt in Progress Monty 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 sellsit to customers at a price of $154 per barrel. Monty currently requires the Mining division to transfer its total annual output of 412,400 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 $95 per barrel. While the Mining division could sell all the toldine it produces on the open market at $95 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 Monty, 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 412.400 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 Division Metals Division $66 $13 Transfer price from Mining division Direct material Direct labor Manufacturing overhead Total cost per barrel 16 21 31 25 $118 $60 Manufacturing overhead cost in the Mining division is 25% fixed and 75% variable. In the Metals division, it is 60% fixed and 40% variable. (b) Using the market price as the transfer price, determine the contribution margins for both divisions for the last fiscal year. (Round Intermediate calculations to 2 decimal nlaces eg 12 25 and final answers to decimal places, eg 1251 Manufacturing overhead cost in the Mining division is 25% fixed and 75% variable. In the Metals division, it is 60% fixed and 40% variable. (b) Using the market price as the transfer price, determine the contribution margins for both divisions for the last fiscal year. (Round intermediate calculations to 2 decimal places, e.g. 12.25 and final answers to O decimal places, e.g. 125.) Mining Metals $ $ Total contribution margin (c) If Monty Consolidated were to institute negotiated transfer prices and allow divisions to buy and sell on the open market, what price range for toldine would be acceptable to both divisions? $ ta Minimum transfer price that mining will accept $ Maximum price that metals will pay
