ISCTE Enterprises runs a chain of drive-in ice cream stands in Lisbon during the summer season. Managers
Question:
ISCTE Enterprises runs a chain of drive-in ice cream stands in Lisbon during the summer season.
Managers of all stands are told to act as if they owned the stand and are judged on their profit performance. ISCTE Enterprises has rented an ice cream machine for the summer for €3,600 to supply its stands with ice cream. ISCTE is not allowed to sell ice cream to other dealers because it cannot obtain a dairy license. The manager of the ice cream machine charges the stands €4 per gallon. Operating figures for the machine for the summer are as follows:
The manager of the Porto Drive-In, one of the ISCTE drive-ins, is seeking permission to sign a contract to buy ice cream from an outside supplier at €3.35 a gallon. The Porto Drive-In uses 4,000 gallons of ice cream during the summer. Victor Franco, chief accountant at ISCTE, refers this request to you. You determine that the other fixed costs of operating the machine will decrease by €900 if the Porto Drive-In purchases from an outside supplier. Franco wants an analysis of the request in terms of overall company objectives and an explanation of your conclusion. What is the appropriate transfer price?
Step by Step Answer:
Introduction To Management Accounting
ISBN: 9780273737551
1st Edition
Authors: Alnoor Bhimani, Charles T. Horngren, Gary L. Sundem, William O. Stratton, Jeff Schatzberg