Choco Corp. has two divisions: Roaster Division and Chocolatier Division. Both are profit centers, where divisional...

 

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Choco Corp. has two divisions: Roaster Division and Chocolatier Division. Both are profit centers, where divisional managers are evaluated on divisional income. For many years, the manager of the Roaster department has been envious of the Chocolatier Division's profit. The Roaster Division processes the harvested cocao beans and transfers them to the Chocolatier Division The manager of the Roaster department declared, "Their profit is five times mine, and they wouldn't have any profit if they didn't use my cocoa beans. Can we share in the profit more equally?" You have decided to examine the transfer pricing arrangement currently in effect in order to identify a transfer price that may be agreeable to the two divisional managers. Price, volume, and costs for the two divisions Roaster Selling price Volume Unit variable cost Fixed costs $ $ $ Chocolatier 3.00 $ 50,000 Notes 5.00 per unit 2.40 $ 25,000 $ 50,000 units 0.70 Excluding the cost of beans 40,000 Instructions There are four parts to this problem. Use Excel to perform the following. a. Prepare comparative contribution margin income statements for the two divisions that reflect the current price at which Roaster transfers units to Chocolatier. Calculate the operating income difference between the two divisions. b. Copy and paste your income comparative income statements from part a into the part b space. Use Excel's Solver tool or trial and error to determine the transfer price that results in both divisions generating the same contribution margin. c. Create two stacked column charts that illustrate sales, variable costs, and contribution margin, one for the results in part a, and the other for the results in part b. Include a descriptive chart title, chart legend, axes labels, and properly formatted axes in the chart. d. Explain what you leam from the two charts. Will the two division managers be pleased with the changed transfer price? Choco Corp. has two divisions: Roaster Division and Chocolatier Division. Both are profit centers, where divisional managers are evaluated on divisional income. For many years, the manager of the Roaster department has been envious of the Chocolatier Division's profit. The Roaster Division processes the harvested cocao beans and transfers them to the Chocolatier Division The manager of the Roaster department declared, "Their profit is five times mine, and they wouldn't have any profit if they didn't use my cocoa beans. Can we share in the profit more equally?" You have decided to examine the transfer pricing arrangement currently in effect in order to identify a transfer price that may be agreeable to the two divisional managers. Price, volume, and costs for the two divisions Roaster Selling price Volume Unit variable cost Fixed costs $ $ $ Chocolatier 3.00 $ 50,000 Notes 5.00 per unit 2.40 $ 25,000 $ 50,000 units 0.70 Excluding the cost of beans 40,000 Instructions There are four parts to this problem. Use Excel to perform the following. a. Prepare comparative contribution margin income statements for the two divisions that reflect the current price at which Roaster transfers units to Chocolatier. Calculate the operating income difference between the two divisions. b. Copy and paste your income comparative income statements from part a into the part b space. Use Excel's Solver tool or trial and error to determine the transfer price that results in both divisions generating the same contribution margin. c. Create two stacked column charts that illustrate sales, variable costs, and contribution margin, one for the results in part a, and the other for the results in part b. Include a descriptive chart title, chart legend, axes labels, and properly formatted axes in the chart. d. Explain what you leam from the two charts. Will the two division managers be pleased with the changed transfer price?

Answer rating: 100% (QA)

a Prepare comparative contribution margin income statements for the two divisions that reflect the c... View the full answer