For (3)-(6) below, assume that the Pulp Division is currently selling only 30,000 tons of pulp each year to outside customers at the stated $70 price. 3. Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for 5,000 tons of pulp next year? Why or why not? 4. Suppose that the Carton Division's outside supplier drops its price (net of the purchase discount) to only $59 per ton. Should the Pulp Division meet this price? Explain. If the Pulp Division does not meet the $59 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 $59 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 5,000 tons of pulp each year from the Pulp Division at $70 per ton. What will be the effect on the profits of the company as a whole?

For (3)-(6) below, assume that the Pulp Division is currently selling only 30,000 tons of pulp each year to outside customers at the stated $70 price. 3. Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for 5,000 tons of pulp next year? Why or why not? 4. Suppose that the Carton Division's outside supplier drops its price (net of the purchase discount) to only $59 per ton. Should the Pulp Division meet this price? Explain. If the Pulp Division does not meet the $59 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 $59 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 5,000 tons of pulp each year from the Pulp Division at $70 per ton. What will be the effect on the profits of the company as a whole?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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