Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting's output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The processing division has a yield of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two divisions are as follows:

Data table

	A	B	C	D
1	Harvesting Division		Processing Division
2	Variable cost per pound of cranberries	$0.10	Variable processing cost per gallon of juice produced	$0.29
3	Fixed cost per pound of cranberries	$0.26	Fixed cost per gallon of juice produced	$0.47
4	Selling price per pound of cranberries in outside market	$0.68	Selling price per gallon of juice	$2.45

Requirements

1.	Compute Cran Benefit's operating income from harvesting 460,000 pounds of cranberries during June 2020 and processing them into juice.
2.	Cran Benefit rewards its division managers with a bonus equal to 7% of operating income. Compute the bonus earned by each division manager in June 2020 for each of the following transfer-pricing methods:
	a.	175% of full cost
	b.	Market price
3.	Which transfer-pricing method will each division manager prefer? How might Cran Benefit resolve any conflicts that may arise on the issue of transfer pricing?

Question content area bottom

Requirement 1. Compute Cran Benefit's operating income from harvesting 460,000 pounds of cranberries during June 2020 and processing them into juice.

Revenues
Costs
Harvesting divison
Variable costs
Fixed costs
Total harvesting division costs
Processing divsion
Variable costs
Fixed costs
Total processing division costs
Total costs
Operating income