Mathes Corporation manufactures paper products. The company operates a landfill, which it uses to dispose of nonhazardous trash. The trash is hauled from the two nearby manufacturing facilities in trucks that can carry up to seven tons of trash in a load. The landfill operation requires certain preparation activities regardless of the amount of trash in a truck (i.e., for each load). The budget for the landfill for next year follows. Volume of trash 1,000 tons (250 loads) Preparation costs (varies by loads) $ 60,000 Other variable costs (varies by tons) 60,000 Fixed costs 158,000 Total budgeted costs $ 278,000 Mathes is considering making the landfill a profit center and charging the manufacturing plants for disposal of the trash. The landfill has sufficient capacity to operate for at least the next 20 years. Other landfills are available in the area (both private and municipal), and each plant would be free to decide which landfill to use. Required: a. Compute the optimal transfer price. b. Compute the total variable costs for a three-ton load of trash from one of the plants.
Mathes Corporation manufactures paper products. The company operates a landfill, which it uses to dispose of nonhazardous trash. The trash is hauled from the two nearby manufacturing facilities in trucks that can carry up to seven tons of trash in a load. The landfill operation requires certain preparation activities regardless of the amount of trash in a truck (i.e., for each load). The budget for the landfill for next year follows.
| Volume of trash | 1,000 tons (250 loads) | |
| Preparation costs (varies by loads) | $ | 60,000 |
| Other variable costs (varies by tons) | 60,000 | |
| Fixed costs | 158,000 | |
| Total budgeted costs | $ | 278,000 |
Mathes is considering making the landfill a profit center and charging the manufacturing plants for disposal of the trash. The landfill has sufficient capacity to operate for at least the next 20 years. Other landfills are available in the area (both private and municipal), and each plant would be free to decide which landfill to use.
Required:
a. Compute the optimal transfer price.
b. Compute the total variable costs for a three-ton load of trash from one of the plants.
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