# Question: Malkin Company has three divisions R S and T organized

Malkin Company has three divisions (R, S, and T), organized as decentralized profit centers. Division R produces the basic chemical Randine (in multiples of 1,000 pounds) and transfers it to Divisions S and T. Division S processes Randine into the final product Syntex, and Division T processes Randine into the final product Termix. No material is lost during processing. Division R has no fixed costs. The variable cost per pound of Randine is $ 0.18.

Division R has a capacity limit of 10,000 pounds. Divisions S and T have capacity limits of 4,000 and 6,000 pounds, respectively. Divisions S and T sell their final product in separate markets. The company keeps no inventories of any kind.

The cumulative net revenues (i. e., total revenues (-) total processing costs) for divisions S and T at various output levels are summarized below.

Required

1. Suppose there is no external market for Randine. What quantity of Randine should the Malkin Company produce to maximize overall income? How should this quantity be allocated between the two processing divisions?

2. What range of transfer prices will motivate Divisions S and T to demand the quantities that maximize over-all income (as determined in requirement 1), as well as motivate Division R to produce the sum of those quantities?

3. Suppose that Division R can sell any quantity of Randine in a perfectly competitive market for $ 0.33 a pound. To maximize Malkin’s income, how many pounds of Randine should Division R transfer to Divisions S and T, and how much should it sell in the external market?

4. What range of transfer prices will result in Divisions R, S, and T taking the actions determined as optimal in requirement 3? Explain youranswer.

Division R has a capacity limit of 10,000 pounds. Divisions S and T have capacity limits of 4,000 and 6,000 pounds, respectively. Divisions S and T sell their final product in separate markets. The company keeps no inventories of any kind.

The cumulative net revenues (i. e., total revenues (-) total processing costs) for divisions S and T at various output levels are summarized below.

Required

1. Suppose there is no external market for Randine. What quantity of Randine should the Malkin Company produce to maximize overall income? How should this quantity be allocated between the two processing divisions?

2. What range of transfer prices will motivate Divisions S and T to demand the quantities that maximize over-all income (as determined in requirement 1), as well as motivate Division R to produce the sum of those quantities?

3. Suppose that Division R can sell any quantity of Randine in a perfectly competitive market for $ 0.33 a pound. To maximize Malkin’s income, how many pounds of Randine should Division R transfer to Divisions S and T, and how much should it sell in the external market?

4. What range of transfer prices will result in Divisions R, S, and T taking the actions determined as optimal in requirement 3? Explain youranswer.

**View Solution:**## Answer to relevant Questions

McDonald’s, a hamburger fast- food restaurant, incurs the following costs: a. Cost of oil for the deep fryer b. Wages of the counter help who give customers the food they order c. Cost of costumes for McDonald’s ...Combined Minerals (CM) owns the rights to extract minerals from beach sands on Fraser Island. CM has costs in three areas:a. Payment to a mining subcontractor who charges $ 90 per ton of beach sand mined and returned to the ...The Fresno Corporation makes water pumps. The Engine Division makes the engines and supplies them to the Assembly Division, where the pumps are assembled. Fresno is a profitable corporation that attributes much of its ...Fabulous Motor Company makes electric cars and has only two products, Simplegreen and Fabulousgreen. To produce Simplegreen, Fabulous Motor employed assets of $ 14,600,000 at the beginning of the period, and $ 27,300,000 of ...Natural Bounty Corporation operates three divisions that process and bottle natural fruit juices. The historical- cost accounting system reports the following information for 2012:Natural Bounty estimates the useful life of ...Post your question