UNIL INSERIDESIGN PAUL LATUU R LI LILILLJ ALIIVOU NEVIEW VIEW (25 marks) (Total: 50 marks) QUESTION SEX Manufacturing of premium, high quality carrot and coriander soup at Red Top Ltd takes place across three divisions. The Garden Division, located in Holland, is responsible for the growing, harvesting and cleaning of carrots. 500 kilograms of carrots yields 480 kilograms of peeled carrot wedges. The Gourmet Division is located in Belguim This division processes the carrot wedges into a dried ingredient (carrot crumb) for use in the food processing industry. Each kilogram of carrot wedges is processed into 2.5 kilograms of carrot crumb. The Gourmet Division could also purchase carrot wedges from local Belgian suppliers, at 0.50 per kilogram and could sell carrot crumb back to those suppliers for 0.80 per kilogram. The Catering Division, located in Ireland, uses the carrot crumb in the manufacturing of ready-to-heat soup, aimed at large-scale institutional catering operations in the education sector. Each carton of soup required 4 kilos of carrot crumb. Each carton of soup is sold for 4.50. Variable and fixed costs per unit for each of the divisions are listed in the following table. Garden 0.16 Gourmet Catering 0.12 Cost Variable costs per kilogram Variable costs per kilogram Variable costs per carton Fixed costs per kilogram Fixed costs per kilogram Fixed costs per carton 0.06 0.14 0.40 0.30 0.40 Fixed costs per kilogram Fixed costs per carton 0.30 Required: (A) Calculate the operating income earned by each division based on the processing of 10,000 kilogr s of harvested carrots into cartons of soup, under each of the following transfer pricing methods: (0) Market prices; () 115% of full costs, where full costs are the cost of the transferred-in product plus the division's own variable and fixed costs; (im) Negotiated transfer prices of 0.40 per kilogram of carrot wedges from the Garden Division to the Gourmet Division, and 0.70 per kilogram of carrot crumb from the Gourmet Division to the Catering Division (please round your calculations to the nearest whole euro] (20 marks) (B) Red Top Ltd has asked your advice. There is no agreement amongst the managers in each of the Divisions as to which method is most favourable for the organization as a whole. Write a short note, stating which method each of the individual managers would choose (based on your calculations in Part A) and the arguments supporting that choice. In your answer, provide criteria to help Red Top Ltd choose between the methods. (C) Provide the missing data in the following table. Show all your workings clearly. Division 400,000 Sales Net Operating Profit Average Operating Assets Marginal Turnover | Return on Investment 100% 1,500,000 9% E3% 25% (10 marks) (Total: 50 marks)