Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 11-20 (Algo) Transfer Price with an Outside Market [LO11-3] Hrubec Products, Incorporated, operates a Pulp Division that manufactures wood pulp for use in the

image text in transcribed

Problem 11-20 (Algo) Transfer Price with an Outside Market [LO11-3] 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: 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 5,300 tons of pulp per year from a supplier at a cost of $69 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 $76 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 5,300 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 5,300 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 $76 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 5,300 tons of pulp next year? 4-a. Suppose the Carton Division's outside supplier drops its price to only $65 per ton. Should the Pulp Division meet this price? 4-b. If the Pulp Division does not meet the $65 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 $65 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 5,300 tons of pulp each year from the Pulp Division at $76 per ton. What will be the effect on the profits of the company as a whole? 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 5,300 tons of pulp next year? Range of acceptable transfer prices Are the managers likely to voluntarily agree to a transfer price for 5,300 tons of pulp next year? If the Pulp Division meets the price that the Carton Division is currently paying to its supplier and sells 5,300 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? (Do not round intermediate calculations.) 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 5,300 tons of pulp next year? (Round your answers to nearest whole dollar amount.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting A Smart Approach

Authors: Mary Carey, Cathy Knowles

4th Edition

0198844808, 9780198844808

More Books

Students also viewed these Accounting questions