Kequirement . Compute Cranrueis operating income rom narvesting Sbu,uuu Kilogram
ID: 2483908 • Letter: K
Question
Kequirement . Compute Cranrueis operating income rom narvesting Sbu,uuu Kilograms or cranperries auring June u ana processing tnem into juice. (Kouna your answers to tne nearest wnoie aollar. use a minus sign or parenthesis for any operating losses.) 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 (loss) Enter any number in the edit fields, then continue to the next questionExplanation / Answer
Answer: Requirement 1:
Harvesting Division
Answer: Requirement 2:
Answer: Requirement 3:
The Harvesting Division manager will prefer to transfer at 250% of full costs because this method gives a higher bonus. The Processing Division manager will prefer transfer at market price for its higher resulting bonus.
Cranfuel may resolve or reduce transfer pricing conflicts by:
•Basing division managers ’ bonuses on overall Cranfuel profits in addition to division operating income. This will motivate each manager to consider what is best for Cranfuel overall and not be concerned with the transfer price alone.
•Letting the two divisions negotiate the transfer price between themselves. However, this may result in constant re-negotiation between the two managers each accounting period.
•Using dual transfer prices However, a cost-based transfer price will not motivate cost control by the Harvesting Division manager . It will also insulate that division from the discipline of market prices.
Kg of cranberries harvested 360000 lt. of juice processed (2200 litre per 1,000 kg.) 792000 Revenue (792000 ltr *2.45) 1940400 Costs:Harvesting Division
Variable costs 28800 Fixed costs 122400 Total harvesting costs 151200 Processing costs: Variable costs 237600 Fixed costs 316800 Total processing Division costs 554400 Total costs 705600 Operating income 1234800Related Questions
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