Hrubec Products, Incorporated, operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow:

Selling price $ $70$

Expenses:

Variable $ $42$

Fixed $($based on a capacity of $50,000$ tons per year$)1860$

Net operating income $ $10$

Hrubec Products has just acquired a small company that manufactures paper cartons. Hrubec plans to treat its newly acquired Carton Division as a profit center. The manager of the Carton Division is currently purchasing $5,000$ tons of pulp per year from a supplier at a cost of $$63$ per ton. Hrubec$$s president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if the managers of the two divisions can negotiate an acceptable transfer price.

Required:

For $(1)$ and $(2)$ below, assume the Pulp Division can sell all of its pulp to outside customers for $$70$ per ton.

$1.$ What is the Pulp Division's lowest acceptable transfer price? What is the Carton Division's highest acceptable transfer price? What is the range of acceptable transfer prices $($if any$)$ between the two divisions? Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for $5,000$ tons of pulp next year?

$2.$ If the Pulp Division meets the price that the Carton Division is currently paying to its supplier and sells $5,000$ tons of pulp to the Carton Division each year, what will be the effect on the profits of the Pulp Division, the Carton Division, and the company as a whole?

For $(3)(6)$ below, assume that the Pulp Division is currently selling only $30,000$ tons of pulp each year to outside customers at the stated $$70$ price.

$3.$ What is the Pulp Division's lowest acceptable transfer price? What is the Carton Division's highest acceptable transfer price? What is the range of acceptable transfer prices $($if any$)$ between the two divisions? Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for $5,000$ tons of pulp next year?

$4-$a$.$ Suppose the Carton Division$$s outside supplier drops its price to only $$59$ per ton. Should the Pulp Division meet this price?

$4-$b$.$ If the Pulp Division does not meet the $$59$ price, what will be the effect on the profits of the company as a whole?

$5.$ Refer to requirement $4.$ If the Pulp Division refuses to meet the $$59$ price, should the Carton Division be required to purchase from the Pulp Division at a higher price for the good of the company as a whole?

$6.$ Refer to requirement $4.$ Assume that due to inflexible management policies, the Carton Division is required to purchase $5,000$ tons of pulp each year from the Pulp Division at $$70$ per ton. What will be the effect on the profits of the company as a whole?