Chapter 11

Question

Requirement 1

Requirement 2

Requirement 3

Requirement 4A

Requirement 4B

Requirement 5

Requirement 6

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: $ 21 Selling price Expenses: Variable Fixed (based on a capacity of 99,000 tons per year) Net operating income $11 6 17 $ 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 32,000 tons of pulp per year from a supplier at a cost of $21 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. Required: For (1) and (2) below, assume the Pulp Division can sell all of its pulp to outside customers for $21 per ton. 1. What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton Division? What is the range of acceptable transfer prices (if any) between the two divisions? Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for 32,000 tons of pulp next year? 2. If the Pulp Division meets the price that the Carton Division is currently paying to its supplier and sells 32,000 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? For (3)-(6) below, assume that the Pulp Division is currently selling only 58,000 tons of pulp each year to outside customers at the stated $21 price. 3. What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton Division? What is the range of acceptable transfer prices (if any) between the two divisions? Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for 32,000 tons of pulp next year? 4-a. Suppose the Carton Division's outside supplier drops its price (net of the purchase discount) to only $16 per ton. Should the Pulp Division meet this price? 4-b. If the Pulp Division does not meet the $16 price, what will be the effect on the profits of the company as a whole? 5. Refer to (4) above. If the Pulp Division refuses to meet the $16 price, should the Carton Division be required to purchase from the Pulp Division at a higher price for the good of the company as a whole? 6. Refer to (4) above. Assume that due to inflexible management policies, the Carton Division is required to purchase 32,000 tons of pulp each year from the Pulp Division at $21 per ton. What will be the effect on the profits of the company as a whole? Req 1 Req 2 Req 3 Req 4A Req 4B Reg 5 Req 6 What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton Division? What is the range of acceptable transfer prices (if any) between the two divisions? Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for 32,000 tons of pulp next year? (Round "Maximum transfer price" answer to 1 decimal place.) Show less Identify the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below: > Transfer price Are the managers likely to voluntarily agree to a transfer price for 32,000 tons of pulp next year? Ores ONO Req 1 Req 2 Req 3 Req 4A Req 4B Req 5 Req 6 If the Pulp Division meets the price that the Carton Division is currently paying to its supplier and sells 32,000 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 b. Profits of the Carton Division will c. Profits of the company as a whole will Req 1 Req 2 Req3 Req 4A Req 4B Req 5 Req6 What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton Division? What is the range of acceptable transfer prices (if any) between the two divisions? Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for 32,000 tons of pulp next year? (Round your final answers to 2 decimal places.) Show less A Identify the lowest and highest acceptable transfer prices: Lowest acceptable transfer price Highest acceptable transfer price Identify the range of acceptable transfer prices (if any): IOThere is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below: s Transfer price Are the managers likely to voluntarily agree to a transfer price for 32,000 tons of pulp next year? OYes O No Reg 1 Reg 2 Req 3 Req 4A Req 4B Req 5 Reg 6 Suppose the Carton Division's outside supplier drops its price (net of the purchase discount) to only $16 per ton. Should the Pulp Division meet this price? Yes ONO Req 1 Req 2 Req 3 Req 4A Req 4B Req 5 Req 6 If the Pulp Division does not meet the $16 price, what will be the effect on the profits of the company as a whole? Profit of the company will by Req 1 Req 2 Req3 Req 4A Req 4B Req 5 Req 6 Refer to (4) above. If the Pulp Division refuses to meet the $16 price, should the Carton Division be required to purchase from the Pulp Division at a higher price for the good of the company as a whole? OYes No Req 1 Req 2 Reg 3 Req 4A Req 4B Req 5 Req 6 Refer to (4) above. Assume that due to inflexible management policies, the Carton Division is required to purchase 32,000 tons of pulp each year from the Pulp Division at $21 per ton. What will be the effect on the profits of the company as a whole? c. The company as a whole will have an) in profit by