Joe Murvey is the CEO of Tasty Treat, a producer of premium ice cream. Tasty Treat has two divisions, the supplying division and the processing division.

Requirement $1.$ What is the profit for the supplying division of supplying $10$ gallons of milk to the processing division under Joe's transfer pricing system? Do you think that the transfer pricing system incentivizes the managers of the supplying division to work hard, as Joe intends?

What is the profit for the supplying division of supplying $10$ gallons of milk to the processing division under Joe's transfer pricing system? Select the formula and enter the amounts to calculate the profit for the supplying division. $($Complete all input fields. Enter a $0$ for any zero balances.$)$

Do you think that the transfer pricing system incentivizes the managers of the supplying division to work hard, as Joe intends?

The transfer pricing system

incentivize the managers of the supplying division to work hard, as Joe intends.

$$ under the transfer

pricing system.

Requirement $2.$ In the back of Joe's mind is that one of the larger competitors may be interested in buying only one of the divisions, and not his entire company. He is patting himself on the back for choosing the transfer pricing system since, in his view, it makes the profitability of each of the two divisions look very good. Do you agree with Joe?

The prom or the processing aivision unuer me transier pricing system is

It woulu pe if me processing aivision was charged a $$

More info

The supplying division supplies milk, the main ingredient, to the processing division. Joe is an ambitious entrepreneur, and he is hoping to soon sell Tasty Treat, which is a private company, to one of the larger competitors. The supplying division buys milk from local farmers for $$6$ per $10$ gallons, and incurs $$2$ of variable costs per $10$ gallons transported to the processing division $($the supplying division doesn't incur any material fixed costs$).$ The processing division could buy milk of the same high quality for $$10$ per $10$ gallons on the outside market. Joe is trying to "whip his company into shape" by implementing a transfer pricing system that he views as providing very strong incentives for the two divisions to work hard: The supplying division will get reimbursed for its incremental costs of supplying the milk to the processing division; the processing division is charged the price that it would have to pay on the open market.