Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for

Question

Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow $22 Selling price Expenses: $12 Variable Fixed (based on a capacity of 103,000 tons per year) 6 18 Net operating income $4 Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently purchasing 31,000 tons of pulp per year from a supplier at a cost of $22 per ton, less a 10% purchase discount. Hrubec's president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if an acceptable transfer price can be worked out Required: For (1) and (2) below, assume that the Pulp Division can sell all of its pulp to outside customers for $22 per ton. 1-a. What is the minimum Transfer Price at which Pulp is willing to sell within the firm? Transfer price 2 MacBook Ai FI F2

Explanation / Answer

1a. The minimum transfer price should be the contribution per unit lost plus variable cost so, 10+ 12 = 22

1b. As from outside supplier it gets for 22 less 10% discount that is for 19.8, so maximum it would pay per unit is 19.8.

1c. No transfer will not take place as transfer price as per pulp will be 22 and as per carton is 19.8 so there is no mutuall price so transfer will not take place.

2a. Profit of pulp division will decrease by 2.2 per unit total 31000*2.2 = 68200

b. Profit of carton division will remain same

c. profit as a whole will decrease by 68200.

Too many question posted at a time as per chegg policy we are allowed to answer only Q1 and 2 with subparts.  

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.