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 $0.14 $0.26 a.) 150% of full cost b.) Market price $0.58 Processing Division Variable cost per gallons of juice produced Fixed cost per gallons of juice Selling price per gallons of juice $0.32 $0.50 $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: 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?
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 $0.14 $0.26 a.) 150% of full cost b.) Market price $0.58 Processing Division Variable cost per gallons of juice produced Fixed cost per gallons of juice Selling price per gallons of juice $0.32 $0.50 $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: 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:
o
Harvesting Division
Variable cost per pound of
cranberries
Fixed cost per pound of
cranberries
Selling price per pound of
cranberries in outside market
$0.14
$0.26
$0.58
Processing Division
Variable cost per gallons of
juice produced
Fixed cost per gallons of juice
Selling price per gallons of
juice
$0.32
$0.50
$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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