Strawberries Juices has two divisions, a Juice Division which manufactures juice by pressing raw fruits into juice, and a Fruit Division which grows raw fruits. The Juice Division requires the Fruit Division to supply 8,000 kg of blueberries to press into blueberries juice per year. The Juice Division can buy all the blueberries it requires from an outside supplier at $13.8 per kg. The Fruit Division has the capacity to grow 20,000 kg of blueberries per year. 18,000 kg of these blueberries can be sold to retail customers at a price of $16 per kg. The Fruit Division can grow blueberries at a cost of $4.8 per kg, plus packing and storage costs of $0.2 per kg. If the Fruit Division would sell its blueberries to the Juice Division, it would incur no packing and storage costs.

a)What is the Fruit Division’s lowest acceptable transfer price? What is the Juice Division’s highest acceptable transfer price? Determine the acceptable range, if any, for the transfer price between the two divisions. Are the managers of both divisions likely to voluntarily agree to a transfer price for 8,000 kg of blueberries? Why or why not?

aii)Now assume that, due to a typhoon, some blueberries plants have been destroyed and the Fruit Division can only grow 18,480 kg of blueberries and they can raise the selling price by 25% when selling to retailers. At the same time, Juice Division predicts the demand for blueberries juice will cut 10% and their supplier also raises the selling price by 25% too. All other factors remain the same. Determine the acceptable range, if any, for the transfer price between the two divisions.

Answer rating: 100% (QA)

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