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C Q Search Chapter 11A 6 3 10 Problem 11A-4 Transfer Price with an Outside Market [L011-5] Hrubec Product, ine.,operates Puip Dwislon that monufactures wood pulp for use in the production of various papergods 10 Revenue and costs associated with a ton of pulp follow: $15 Fixed (based on a capacity of 101,000 tons per year) 6 21 Net operating income Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently purchasing 28,000 tons of pulp per year from a supplier at a cost of $24 per ton, less a 10% purchase discount. Hrubec's president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if an acceptable transfer price can be worked out. Required: For (1) and (2) below, assume the Pulp Division can sell all of its pulp to outside customers for $24 per ton. 1. What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton Division? What is the range of acceptable transfer prices (if any) between managers of the Carton and Pulp Division 2. If the Pulp Division meets the price that the Carton Division is currently paying to its supplier and sells 28,000 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? the two divisions? Are the s likely to voluntarily agree to a transfer price for 28,000 tons of pulp next year? K Prev3 of 5 Next