Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper g
Posted: Mon May 30, 2022 7:22 am
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:
Hrubec Products has just acquired a small company that
manufactures paper cartons. Hrubec plans to treat its newly
acquired Carton Division as a profit center. The manager of the
Carton Division is currently purchasing 29,000 tons of pulp per
year from a supplier at a cost of $22.50 per ton. Hrubec’s
president is anxious for the Carton Division to begin purchasing
its pulp from the Pulp Division if the managers of the two
divisions can negotiate an acceptable transfer price.
Required:
For (1) and (2) below, assume the Pulp Division can sell all of
its pulp to outside customers for $25 per ton.
1. What is the Pulp Division's lowest acceptable transfer price?
What is the Carton Division's highest acceptable transfer price?
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
29,000 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 29,000 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 65,000 tons of pulp each year to outside customers at
the stated $25 price.
3. What is the Pulp Division's lowest acceptable transfer price?
What is the Carton Division's highest acceptable transfer price?
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
29,000 tons of pulp next year?
4-a. Suppose the Carton Division’s outside supplier drops its
price to only $21 per ton. Should the Pulp Division meet this
price?
4-b. If the Pulp Division does not meet the $21 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
$21 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 29,000 tons
of pulp each year from the Pulp Division at $25 per ton. What will
be the effect on the profits of the company as a whole?
manufactures wood pulp for use in the production of various paper
goods. Revenue and costs associated with a ton of pulp follow:
Hrubec Products has just acquired a small company that
manufactures paper cartons. Hrubec plans to treat its newly
acquired Carton Division as a profit center. The manager of the
Carton Division is currently purchasing 29,000 tons of pulp per
year from a supplier at a cost of $22.50 per ton. Hrubec’s
president is anxious for the Carton Division to begin purchasing
its pulp from the Pulp Division if the managers of the two
divisions can negotiate an acceptable transfer price.
Required:
For (1) and (2) below, assume the Pulp Division can sell all of
its pulp to outside customers for $25 per ton.
1. What is the Pulp Division's lowest acceptable transfer price?
What is the Carton Division's highest acceptable transfer price?
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
29,000 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 29,000 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 65,000 tons of pulp each year to outside customers at
the stated $25 price.
3. What is the Pulp Division's lowest acceptable transfer price?
What is the Carton Division's highest acceptable transfer price?
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
29,000 tons of pulp next year?
4-a. Suppose the Carton Division’s outside supplier drops its
price to only $21 per ton. Should the Pulp Division meet this
price?
4-b. If the Pulp Division does not meet the $21 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
$21 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 29,000 tons
of pulp each year from the Pulp Division at $25 per ton. What will
be the effect on the profits of the company as a whole?