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    Oct-2001 - Nov-2016

Category > Accounting Posted 11 Aug 2017 My Price 14.00

Hrubec Products, Inc.

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:

     
Selling price   $23
Expenses:    
Variable $13  
Fixed (based on a capacity of
102,000 tons per year)		 6 19
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 30,000 tons of pulp per year from a supplier at a cost of $23 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."

For Requirement 1 through 2 below, assume that the Pulp Division can sell all of its pulp to outside customers for $23 per ton.

 

 

Requirement 1:
(a)

What is the minimum transfer price for Pulp Division? Minimum transfer price $______________

 
(b)

What is the maximum transfer price that Carton Division is ready to pay? Maximum transfer price $_________

 
Requirement 2:

If the Pulp Division meets the price that the Carton Division is currently paying to its supplier and sells 30,000 tons of pulp to the Carton Division each year, what will be the effect on the profits of the Pulp Division, the Carton Division, and the company as a whole?

 

a. Profits of the Pulp Division will decrease by $__________
b. Profits of the Carton Division will remains unchanged by $_________
c. Profits of the company as a whole will decrease by $______________

 

For Requirement 3 through 6 below, assume that the Pulp Division is currently selling only 62,000 tons of pulp each year to outside customers at the stated $23 price.

Requirement 3:
(a)

What is the minimum transfer price for Pulp Division? Minimum transfer price $___________

(b)

What is the range of transfer price the manager's of both divisions should agree? From $________ to $_______

 

Requirement 4:

(b)

How much potential profit will the Pulp Division lose if the $18 price is not met? Profit of the comapny will decrease by $______________

 

 

 
Requirement 6:

Refer to Requirement 4 above. Assume that due to inflexible management policies, the Carton Division is required to purchase 30,000 tons of pulp each year from the Pulp Division at $23 per ton. What will be the effect on the profits of the company as a whole?

A. The Pulp Division will have an increase in profit by $__________

B. The Carton Division will have a decrease in profit by $________

C. The company as a whole will have an increase in profit by $__________.

 

Answers

Maurice Tutor
(5)
Status NEW Posted 11 Aug 2017 06:08 PM My Price 14.00

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