Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
180$300
900)270$275($ −
Fixed costs (210,000 gals.
$0.50 per gal.)
105,000
Total Processing Division costs
172,200
Total costs
340,200
Operating income
$111,300
2.
150% of
Full Costs
Market
Price
Transfer price per pound [($0.14 + $0.26)
1.5; $0.58]
$0.60
$0.58
1. Harvesting Division
Revenues (420,000 lbs.
$0.60; $0.58)
$252,000
$243,600
Costs
Division variable costs (420,000 lbs.
$0.14 per lb.)
58,800
58,800
Division fixed costs (420,000 lbs.
$0.26 per lb.)
109,200
109,200
Total division costs
168,000
168,000
Division operating income
$84,000
$75,600
Harvesting Division manager's bonus (3% of operating income)
$2,520
$2,268
2. Processing Division
Revenues (210,000 gals.
$2.15 per gal.)
$451,500
$451,500
Costs
Transferred-in costs
252,000
243,600
Division variable costs (210,000 gals.
$0.32 per gal.)
67,200
67,200
Division fixed costs (210,000 gals.
$0.50 per gal.)
105,000
105,000
Total division costs
424,200
415,800
Division operating income
$ 27,300
$ 35,700
Processing Division manager’s bonus (3% of operating income)
$819
$1,071
3. Bonus paid to division managers at 3% of division operating income is computed above
and summarized below:
Internal Transfers
at 150% of Full Costs
Internal Transfers
at Market Prices
Harvesting Division manager’s bonus
(3% × $84,000; 3% × $75,600)
$2,520
$2,268
Processing Division manager’s bonus
(3% × $27,300; 3% × $35,700)
$819
$1,071
The Harvesting Division manager will prefer to transfer at 150% of full costs because this
method gives a higher bonus. The Processing Division manager will prefer transfer at market
price for its higher resulting bonus.
Cranergy may resolve or reduce transfer pricing conflicts by the following:
