Exercise 13.28 Wood Inc. manufactures wood poles. It has two divisions, Harvesting and Sawing, which are both evaluated as profit centres. The Harvesting Division is responsible for all the harvesting operations and transfers logs to the Sawing Division, which transforms the logs into poles for external customers. Sawing can produce 10,000 poles per year. The Sawing Division is currently producing at full capacity, after management decided a year ago to manufacture a higher-demand wood pole, Pole-S, that can be sold readily. The manager of the Sawing Division suggests that the maximum price the division can pay for logs transferred trom Harvesting is 562.30 per log. The following information supports this suggestion Price that external customers are willing to pay for one unit of Pole S 5122.40. Costs per unit: Direct labour Variable overhead Fixed overhead Direct materials (other than logs) Total cost per unit Target profit margirn Total cost and margin Maximum transfer price for one lag 62.30 $35.80 4.00 8.20 2.10 50.10 10.80 60.90 The manager o the Harvesting Division disagrees with the proposed transfer price o $62.30 The division is operating at full capacity and can sell all the logs it produces to external customers or says: "For cach unit of Polc S my direct labour cost is $41.90, variable overhead is $6.10, and fixed overhead is 519. I cannot spend $67 to cut trees and sell therm for $62.30. 76 Moreover, the director Determine whether it would be beneficial for the company as a whole if logs were transferred to the Sawing Division at the suggested price of $62.30 per lag Round entry to whole amounts, e g 5,725 The contribution margin is V If lags are transferred from the Harvesting Division to the Sawing Division. wood inc. transferring the lags