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Question 2 Cranergy 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: Harvesting Division |Variable cost per pound of cranberries Fixed cost per pound of |cranberries Selling price per pound of cranberries in outside market Processing Division Variable cost per gallons of juice produced Fixed cost per gallons of juice S0.50 $0.14 $0.32 $0.26 $0.58 $2.15 Selling price per gallons of |juice

Question 2 Cranergy 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: Harvesting Division |Variable cost per pound of cranberries Fixed cost per pound of |cranberries Selling price per pound of cranberries in outside market Processing Division Variable cost per gallons of juice produced Fixed cost per gallons of juice S0.50 $0.14 $0.32 $0.26 $0.58 $2.15 Selling price per gallons of |juice

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question 2 Cranergy 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: Harvesting Division Variable cost per pound of cranberries Fixed cost per pound of cranberries Selling price per pound of cranberries in outside market Processing Division Variable cost per gallons of juice produced Fixed cost per gallons of juice $0.14 $0.32 $0.26 $0.50 $0.58 Selling price per gallons of juice $2.15 Required: 1. Compute Cranergy's operating income from harvesting 420,000 pounds of cranberries and processing them into juice. 2. Cranergy rewards its division managers with a bonus equal to 3% of operating income. Compute the bonus earned by each division manager for each of the following transfer pricing methods: a.) 150% of full cost b.) Market price 3. Which transfer-pricing method will each division manager prefer? How might Cranergy resolve any conflicts that may arise on the issue of transfer pricing?
Transcribed Image Text:Question 2 Cranergy 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: Harvesting Division Variable cost per pound of cranberries Fixed cost per pound of cranberries Selling price per pound of cranberries in outside market Processing Division Variable cost per gallons of juice produced Fixed cost per gallons of juice $0.14 $0.32 $0.26 $0.50 $0.58 Selling price per gallons of juice $2.15 Required: 1. Compute Cranergy's operating income from harvesting 420,000 pounds of cranberries and processing them into juice. 2. Cranergy rewards its division managers with a bonus equal to 3% of operating income. Compute the bonus earned by each division manager for each of the following transfer pricing methods: a.) 150% of full cost b.) Market price 3. Which transfer-pricing method will each division manager prefer? How might Cranergy resolve any conflicts that may arise on the issue of transfer pricing?
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