Oriole Industries is a decentralized company with two divisions: mining and processing. They are both evaluated as profit centres. The mining division transfers raw diamonds to the processing division. The processing division is currently operating at 1 million kg below its capacity, while the mining division is operating at full capacity. The mining division can sell raw diamonds externally at $82 per kilogram. The unit cost of 1 kg of polished diamonds produced by the processing division is as follows:

Raw diamonds		$82
Direct materials		13
Direct labour ($20/hour)		33
Variable manufacturing overhead		23
Fixed manufacturing overhead*		52
Total unit cost		$203

*Based on a capacity of 5.20 million kg per year. The processing division has just received an order from International Diamonds Co. for 310,000 kg of polished diamonds at a price of $190 per kilogram. Oriole has a policy that prohibits selling any product below total cost. The total cost of a kilogram of raw diamonds in the mining division is $65, of which 25% is company fixed costs.

A) Calculate the following for Oriole. (Round "Variable cost of raw diamonds" answer to 2 decimal places, e.g. 25.35.)

Variable cost of raw diamonds		$
Contribution margin from selling 310,000 kilograms of raw diamonds		$
Contribution margin from selling 310,000 kilograms of polished diamonds		$

Would Oriole as a whole benefit if the raw diamonds were transferred to the processing division at $65 per kilogram to fill the order from International Diamonds?

B) Calculate the minimum and maximum transfer prices that could be used. (Round answers to 2 decimal places, e.g. 25.35.)

Minimum transfer price		$
Maximum transfer price		$.

C) Recommend an appropriate transfer price for raw diamonds sold by the mining division to the processing division. (Round answers to 2 decimal places, e.g. 25.35.)

Appropriate transfer price

$

D) If the mining division was not operating at full capacity, calculate the appropriate transfer price. (Round answers to 2 decimal places, e.g. 25.35.)

Appropriate transfer price would be between

$ and $

Would your answer in part (d) be different?