The ...Northwest ...Division of ...Kebalo Electric.. produces ..hydroelectric ...power. The power

plant has seven machines that can harvest hydroelectric power on a continuous

process such that the capacity of the plant is 5,000 machine hours per month. The

plant produces three types of electric power. Energy type "Standard" is not easily

stored, energy type "Super" is easier to store and send to more remote regions, and

energy type "Bad" has no external market. However, energy type "Bad" is easily

transferred to the Southwest Division of Kebalo Electric where it can be transferred

into a marketable energy source by the Southwest Division. The Southwest Division

can further process the "Bad" energy at a variable cost of $1 per unit and sell it for $5

per unit. The selling price for the energy types are as follows (note: a unit of energy is

a kilowatt-hour):

"Super" "Standard" "Bad"

Selling Price/unit 6 3.5 --

Variable Cost/unit 2 1 3

Total Fixed Cost $15,000

Machine hours/unit 0.5 0.25 1

The external demand for each energy source in units (kilowatt-hours) is as follows:

"Super" "Standard" "Bad"

Demand in units (kilowatthours) 3,000 1,500 --

1. Which product generates the greatest contribution margin per machine hour for the

Northwest Division?

Super? Standard? or Bad?

2.What is the optimal transfer pricing schedule for the Northwest Division to charge the

Southwest Division for "Bad" energy?

0-3,125 units the transfer price =?

3,126-4,625 units the transfer price =?

4,626-5000 units the transfer price =?

3.The taxing authorities agree that the transfer price from the Northwest Division to the

Southwest Division can be in a range of $3/u to $14/u. What is the optimal transfer

price (from the perspective of Kebalo Electric as a whole) if the Southwest Division

resides in a region that is regulated by a tax rate of 35%, whereas the tax rate for the

Northwest Division is only 15%?(please answer as a number).

4.In one or two clear, concise, and complete sentences explain your answer to the

question above.

5.What is the maximum total contribution margin of Kebalo Electric (hint: calculate the

total revenue and subtract the total variable cost noting that the constraint is machine

hours and there is an optimal production schedule of Super, Standard, and Bad

power).

6.Suppose that the CEO of the firm forces the Northwest Division to transfer 4,000

kilowatt-hours of "Bad" power to the Southwest division at $4.00 per kilowatt-hour.

What is the cost or benefit to the total profits of the firm if the Northwest division is

forced to transfer 4,000 kilowatt-hours of "Bad" power to the Southwest division at

$4.00 per kilowatt-hour? Ignore the taxes mentioned above in this analysis.

7.In one or two clear, concise, and complete sentences explain your answer to the

question above.