Homework Help is Here – Start Your Trial Now!
Business
Accounting
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
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
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?
Transcribed Image Text: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?
PROBLEM 11A-4 Transfer Price with an Outside Market [LO11-5] Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the pro- duction of various paper goods. Revenue and costs associated with a ton of pulp follow: Selling price . Expenses: $70 Variable .. $42 Fixed (based on a capacity of 50,000 tons per year) . 18 60 Net operating income $10 Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently purchasing 5,000 tons of pulp per year from a supplier at a cost of $70 per ton, less a 10% purchase discount. Hrubec's president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if an acceptable transfer price can be worked out.
Transcribed Image Text:PROBLEM 11A-4 Transfer Price with an Outside Market [LO11-5] Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the pro- duction of various paper goods. Revenue and costs associated with a ton of pulp follow: Selling price . Expenses: $70 Variable .. $42 Fixed (based on a capacity of 50,000 tons per year) . 18 60 Net operating income $10 Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently purchasing 5,000 tons of pulp per year from a supplier at a cost of $70 per ton, less a 10% purchase discount. Hrubec's president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if an acceptable transfer price can be worked out.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Trade Credit
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS