A fertilizer company operates two production facilities in regional Queensland. Production from Facility A is 150,000 tonnes
Question:
A fertilizer company operates two production facilities in regional Queensland. Production from Facility A is 150,000 tonnes and production from Facility B is 200,000 tonnes. The company can sell the fertilizer to two wholesale distributors. The price received from wholesale distributor A is $675 per tonne and the price received from wholesale distributor B is $674 per tonne. By agreement, the fertilizer company pays the transport costs. The distance from production facility A to wholesale distributor A is 470 kilometers and the distance from production facility A to wholesale distributor B is 540 kilometers. The distance from production facility B to wholesale distributor A is 420 kilometers and the distance from production facility B to wholesale distributor B is 520 kilometers. Transfer costs from production facility A to either wholesale distributor A or wholesale distributor B are $0.15 per tonne per kilometer. Transfer costs from production facility B to either wholesale distributor A or wholesale distributor B are $0.12 per tonne per kilometer. The distance between the two wholesale distributors is 700 kilometers and transfer costs between the two wholesale distribution markets are $0.10 per tonne per kilometer.
- For Production Facility A, what is the net price received per tonne from selling to Wholesale Distributor A?
- For Production Facility A, what is the net price received per tonne from selling to Wholesale Distributor B?
- For Production Facility B, what is the net price received per tonne from selling to Wholesale Distributor A?
- For Production Facility B, what is the net price received per tonne from selling to Wholesale Distributor B?
- To which wholesale distributor will each production facility sell?
- Consider the transfer costs between the Wholesale Distributor A and Wholesale Distributor B locations. Which of the following statements is correct?
- Buyers can purchase fertilizer from Wholesale Distributor A and sell it to Wholesale Distributor B for a profit of $2.00 per tonne.
- As transfer costs between the two wholesalers are greater than the price difference between the two wholesale locations there is no possibility of trade between the two locations.
- The grade should occur between the two market locations until the price is the same in both market locations.
- Trade should occur between the two market locations until the price difference between the two market locations equals transfer costs.
- Following an increase in demand, the price in the Wholesale Distributor B market increases to $677. At the same time transfer costs from Production Facility A to Wholesale Distributor B decrease from $0.15 to $0.14 per tonne per kilometer and transfer costs from Production Facility B to Wholesale Distributor B decrease from $0.12 to $0.11 per tonne per kilometer. How do these changes alter the selling decisions of the fertilizer company?
Intermediate Accounting
ISBN: 978-0071339476
Volume 1, 6th Edition
Authors: Beechy Thomas, Conrod Joan, Farrell Elizabeth, McLeod Dick I