Radom Manufacturing produces various 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 five 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 2,450 tons (490 loads) Preparation costs (varies by loads) $ 166,600 Other variable costs (varies by tons) 166,600 Fixed costs 245,000 Total budgeted costs $ 578,200 Radom plans to make the landfill a profit center and charge 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 both Radom manufacturing plants would be free to decide which landfill to use. Required: Compute the optimal transfer price. Compute the total variable costs for a three-ton load of trash from one of the plants.
Radom Manufacturing produces various 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 five 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 | 2,450 tons (490 loads) |
|---|---|
| Preparation costs (varies by loads) | $ 166,600 |
| Other variable costs (varies by tons) | 166,600 |
| Fixed costs | 245,000 |
| Total budgeted costs | $ 578,200 |
Radom plans to make the landfill a profit center and charge 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 both Radom manufacturing plants would be free to decide which landfill to use.
Required:
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Compute the optimal transfer price.
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Compute the total variable costs for a three-ton load of trash from one of the plants.
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