Problem 11A-4 Transfer Price with an Outside Market [L011-5] Hrubec Products, Inc., 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: 24 Selling price Expenses: Variable Fixed (based on a capacity of $14 6 20 S 4 101,000 tons per year) 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 29,000 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 the two divisions? Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for 29,000 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 29,000 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 61,000 tons of pulp each year to outside customers at the stated $24 price