EBK HORNGREN'S COST ACCOUNTING
16th Edition
ISBN: 9780134475998
Author: Rajan
Publisher: YUZU
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Textbook Question
Chapter 22, Problem 22.28P
Effect of alternative transfer-pricing methods on division operating income. 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 processing division has a yield of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two divisions are as follows:
- A. Compute Cran Health’s operating income from harvesting 480,000 pounds of cranberries during June 2017 and processing them into juice.
- B. Cran Health rewards its division managers with a bonus equal to 6% of operating income. Compute the bonus earned by each division manager in June 2017 for each of the following transfer-pricing methods:
- a. 225% of full cost
- b. Market price
- C. Which transfer-pricing method will each division manager prefer? How might Cran Health resolve any conflicts that may arise on the issue of transfer pricing?
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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 processing division has a
produce of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two
divisions are as follows:
Harvesting Division
Processing Division
Variable cost per pound of cranberries
$0.10
Variable cost per gallon of juice produced $0.18
Fixed cost per pound of cranberries
$0.30 Fixed cost per gallon of juice produced
$0.35
Selling price per pound of cranberries in $0.68 Selling price per gallon of juice
outside market
$2.45
If processing division purchases cranberries from outside supplier, the price will be $0.15 per pound.
Required:
1. What is the minimum transfer price at which the harvesting division willing to accept to…
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 processing division has a yield of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two divisions are as follows:
Assume that Pat Borges, CEO of Cran Health, had mandated a transfer price equal to 225% of full cost. Now he decides to decentralize some management decisions and sends around a memo that states the following: “Effective immediately, each division of Cran Health is free to make its own decisions regarding the purchase of direct materials and the sale of finished products.”
Q. Borges feels that a dual transfer-pricing policy will improve goal congruence. He suggests that transfers out of the harvesting division be made at…
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 processing division has a yield of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two divisions are as follows:
Q.Compute Cran Health’s operating income from harvesting 480,000 pounds of cranberries during June 2017 and processing them into juice.
Chapter 22 Solutions
EBK HORNGREN'S COST ACCOUNTING
Ch. 22 - Prob. 22.1QCh. 22 - Describe three criteria you would use to evaluate...Ch. 22 - What is the relationship among motivation, goal...Ch. 22 - Name three benefits and two costs of...Ch. 22 - Organizations typically adopt a consistent...Ch. 22 - Transfer pricing is confined to profit centers. Do...Ch. 22 - What are the three methods for determining...Ch. 22 - What properties should transfer-pricing systems...Ch. 22 - All transfer-pricing methods give the same...Ch. 22 - Prob. 22.10Q
Ch. 22 - Prob. 22.11QCh. 22 - Prob. 22.12QCh. 22 - Prob. 22.13QCh. 22 - Under the general guideline for transfer pricing,...Ch. 22 - How should managers consider income tax issues...Ch. 22 - Evaluating management control systems, balanced...Ch. 22 - Cost centers, profit centers, decentralization,...Ch. 22 - Prob. 22.18ECh. 22 - Prob. 22.19ECh. 22 - Multinational transfer pricing, effect of...Ch. 22 - Prob. 22.21ECh. 22 - Multinational transfer pricing, global tax...Ch. 22 - Prob. 22.23ECh. 22 - Prob. 22.24ECh. 22 - Transfer-pricing problem (continuation of 22-24)....Ch. 22 - Prob. 22.26PCh. 22 - Prob. 22.27PCh. 22 - Effect of alternative transfer-pricing methods on...Ch. 22 - Goal-congruence problems with cost-plus...Ch. 22 - Multinational transfer pricing, global tax...Ch. 22 - Transfer pricing, external market, goal...Ch. 22 - Prob. 22.32PCh. 22 - Transfer pricing, goal congruence, ethics. Cocoa...Ch. 22 - Prob. 22.34PCh. 22 - Transfer pricing, perfect and imperfect markets....Ch. 22 - Prob. 22.36PCh. 22 - Prob. 22.37P
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