Question
SandhillIndustries is a decentralized company with two divisions: mining and processing. They are both evaluated as profit centres. The mining division transfers raw diamonds to
SandhillIndustries 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 $87per kilogram. The unit cost of 1 kg of polished diamonds produced by the processing division is as follows:
Raw diamonds
$87Direct materials
18Direct labour ($20/hour)
38Variable manufacturing overhead
28Fixed manufacturing overhead*
52Total unit cost
$223
*Based on a capacity of5.20million kg per year.
The processing division has just received an order from International Diamonds Co. for320,000kg of polished diamonds at a price of $200per kilogram.Sandhillhas a policy that prohibits selling any product below total cost. The total cost of a kilogram of raw diamonds in the mining division is $65, of which25% is company fixed costs.
Calculate the following forSandhill.(Round "Variable cost of raw diamonds" answer to 2 decimal places, e.g. 25.35.)
Variable cost of raw diamonds$
enter a dollar amount rounded to 2 decimal places
Contribution margin from selling320,000kilograms of raw diamonds$
enter a dollar amount
Contribution margin from selling320,000kilograms of polished diamonds$
enter a dollar amount
WouldSandhillas a whole benefit if the raw diamonds were transferred to the processing division at $65per kilogram to fill the order from International Diamonds?
select an option
Yes
No
Calculate the minimum and maximum transfer prices that could be used.(Round answers to 2 decimal places, e.g. 25.35.)
Minimum transfer price
$
enter a dollar amount
Maximum transfer price
$
enter a dollar amount
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$
enter the appropriate transfer price in dollars
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
$
enter a dollar amount
and $
enter a dollar amount
Would your answer in part (d) be different?
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