Cran Health Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting's output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The procesing division has a yield of 500 gallons of juice per 1,000 pounds of craberries. Cost and market price data for the two divisions are:

HarvestingDivision			Processing Division
Variable cost per lb of Cranberries	$.0.06		Variable processing cost per gallon of juice produced	$0.35
Fixed cost per lb of cranberries	$0.34		Fixed Cost per Gallon of juice produced	$0.37
Selling Price per pound of cranberries in outside Market	$0.58		Selling price per gallon of Juice	$2.40

- Compute Cran Health's operating income from harvesting 440,000 pounds of cranberries during June 2013 and processing them into juice.

-Cran Health rewards its divisions managers with a bonus equal to 6% of operating income. Compute the bonus earned by each division manager in June 2013 for each of the following transfer pricing methods:

a.175% of full cost

b. Market Price

- Which transfer-pricing method will each division manager perfer? How might Cran Health resolve any conflicts that may arise on the issue of transfer pricing?

Answer rating: 100% (QA)

Solution Calculation of Operating Income Selling Price Harvesting Division Variable Co... View the full answer