Division 2 can buy the processed milk from Division 1 and outside the market to make...

  

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Division 2 can buy the processed milk from Division 1 and outside the market to make flavoured yogurt and sell it to the outside market. Both divisions are treated as profit centres and can freely choose their suppliers and customers. If the product is transferred internally between two divisions, no packaging and advertising cost will be incurred for Division 1. Division 2 can buy all its required milk from an outside supplier for $0.80 per litre. The operational variable overhead cost is allocated to products based on 120% of direct labour cost per litre in each division. Data regarding both Divisions for the last month is presented as follows Capacity per month (1,000 litres) Market selling price per 1,000 litres DLH needed per 1,000 litres (minute) DLH rate per hour Direct material cost (milk for Processing and flavours for Dairy divisions) per 1,000 litres Packaging cost per litre Variable overhead cost per 1,000 litres Advertising cost per month Fixed manufacturing costs for the month for the division ($) Total external demand per month for the divisions (1,000 litres) Division 1 300,000 $1,000 60 $25 $500.00 $0.20 ? $15,000 $150,000 210,000 Division 2 120,000 $2,000 30 $30 $250.00 $0.30 ? $18,000 $160,000 120,000 a. Determine the minimum transfer price per 1,000 litres of milk that Division 1 would accept for an order of up to 80,000,000 litres of milk from Division 2 (based on current demand and capacity). b. Determine the maximum transfer price per 1,000 litres of milk that Division 2 would pay to Division 1 for any order size of up to 85,000,000 litres of milk. c. Determine what transfer price per 1,000 litres of milk would be the best for NZ Dairy LTD (as a whole) based on current demand and capacity if Division 1 wants to receive an order size of up to 90,000,000 litres of milk from Division 2? d. What transfer price per 1,000 litres of milk would you recommend if Division 1 had no spare capacity? What transfer price per 1,000 litres of milk would you recommend for Division 1 if Division 2 wants to acquire all it needs (based on current demand and current capacity) from Division 1? e. f. Determine the minimum special-order price per 1,000 litres of milk for Division 1 if the Division receives a special order for 145,000,000 litres of milk from an outsider (packaging is needed but not advertising)? g. Discuss other factors you would consider for determining the transfer price and minimum special-order price for the current case (at least one factor for each situation). AUCKLAND Division 2 can buy the processed milk from Division 1 and outside the market to make flavoured yogurt and sell it to the outside market. Both divisions are treated as profit centres and can freely choose their suppliers and customers. If the product is transferred internally between two divisions, no packaging and advertising cost will be incurred for Division 1. Division 2 can buy all its required milk from an outside supplier for $0.80 per litre. The operational variable overhead cost is allocated to products based on 120% of direct labour cost per litre in each division. Data regarding both Divisions for the last month is presented as follows Capacity per month (1,000 litres) Market selling price per 1,000 litres DLH needed per 1,000 litres (minute) DLH rate per hour Direct material cost (milk for Processing and flavours for Dairy divisions) per 1,000 litres Packaging cost per litre Variable overhead cost per 1,000 litres Advertising cost per month Fixed manufacturing costs for the month for the division ($) Total external demand per month for the divisions (1,000 litres) Division 1 300,000 $1,000 60 $25 $500.00 $0.20 ? $15,000 $150,000 210,000 Division 2 120,000 $2,000 30 $30 $250.00 $0.30 ? $18,000 $160,000 120,000 a. Determine the minimum transfer price per 1,000 litres of milk that Division 1 would accept for an order of up to 80,000,000 litres of milk from Division 2 (based on current demand and capacity). b. Determine the maximum transfer price per 1,000 litres of milk that Division 2 would pay to Division 1 for any order size of up to 85,000,000 litres of milk. c. Determine what transfer price per 1,000 litres of milk would be the best for NZ Dairy LTD (as a whole) based on current demand and capacity if Division 1 wants to receive an order size of up to 90,000,000 litres of milk from Division 2? d. What transfer price per 1,000 litres of milk would you recommend if Division 1 had no spare capacity? What transfer price per 1,000 litres of milk would you recommend for Division 1 if Division 2 wants to acquire all it needs (based on current demand and current capacity) from Division 1? e. f. Determine the minimum special-order price per 1,000 litres of milk for Division 1 if the Division receives a special order for 145,000,000 litres of milk from an outsider (packaging is needed but not advertising)? g. Discuss other factors you would consider for determining the transfer price and minimum special-order price for the current case (at least one factor for each situation). AUCKLAND

Answer rating: 100% (QA)

To determine the various transfer prices and minimum specialorder price we need to calculate the relevant costs and consider the capacity and demand constraints for each division Lets calculate each s... View the full answer