Transfer pricing, perfect and imperfect markets. Letang Company has three divisions (R, S, and T), organized as decentralized profit centers. Division R produces the basic chemical Ranbax, in multiples of 1,000 pounds, and transfers it to divisions S and T. Division S processes Ranbax into the final product Syntex, and division T processes Ranbax into the final product Termix. No material is lost during processing. Division R has no fixed costs. The variable cost per pound of Ranbax is $0.18. Division R has a capacity limit of 10,000 pounds. Divisions S and T have capacity limits of 4,000 and 6,000 pounds, respectively. Divi- sions S and T sell their final product in separate markets. The company keeps no inventories of any kind. The cumulative net revenues (i.e., total revenues – total processing costs) for divisions S and T at vari- ous output levels are summarized below. Division S Pounds of Ranbax processed in S Total net revenues ($) from sale of Syntex 4,000 $1,100 $1,200 1,000 2,000 3,000 $ 500 $ 850 Division T Pounds of Ranbax processed in T Total net revenues ($) from sale of Termix $600 6,000 $2,350 1,000 2,000 3,000 4,000 $1,800 $2,100 $2,250 5,000 $1,200
Transfer pricing, perfect and imperfect markets. Letang Company has three divisions (R, S, and T), organized as decentralized profit centers. Division R produces the basic chemical Ranbax, in multiples of 1,000 pounds, and transfers it to divisions S and T. Division S processes Ranbax into the final product Syntex, and division T processes Ranbax into the final product Termix. No material is lost during processing. Division R has no fixed costs. The variable cost per pound of Ranbax is $0.18. Division R has a capacity limit of 10,000 pounds. Divisions S and T have capacity limits of 4,000 and 6,000 pounds, respectively. Divi- sions S and T sell their final product in separate markets. The company keeps no inventories of any kind. The cumulative net revenues (i.e., total revenues – total processing costs) for divisions S and T at vari- ous output levels are summarized below. Division S Pounds of Ranbax processed in S Total net revenues ($) from sale of Syntex 4,000 $1,100 $1,200 1,000 2,000 3,000 $ 500 $ 850 Division T Pounds of Ranbax processed in T Total net revenues ($) from sale of Termix $600 6,000 $2,350 1,000 2,000 3,000 4,000 $1,800 $2,100 $2,250 5,000 $1,200
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 4CMA: Morrisons Plastics Division, a profit center, sells its products to external customers as well as to...
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What range of transfer prices will motivate divisions S and T to demand the quantities that maximize overall income , as well as motivate division R to produce the sum of those quantities?
![Transfer pricing, perfect and imperfect markets. Letang Company has three divisions (R, S, and
T), organized as decentralized profit centers. Division R produces the basic chemical Ranbax, in multiples
of 1,000 pounds, and transfers it to divisions S and T. Division S processes Ranbax into the final product
Syntex, and division T processes Ranbax into the final product Termix. No material is lost during processing.
Division R has no fixed costs. The variable cost per pound of Ranbax is $0.18. Division R has a capacity
limit of 10,000 pounds. Divisions S and T have capacity limits of 4,000 and 6,000 pounds, respectively. Divi-
sions S and T sell their final product in separate markets. The company keeps no inventories of any kind.
The cumulative net revenues (i.e., total revenues – total processing costs) for divisions S and T at vari-
ous output levels are summarized below.
Division S
Pounds of Ranbax processed in S
Total net revenues ($) from sale of Syntex
4,000
$1,100 $1,200
1,000
2,000
3,000
$ 500
$ 850
Division T
Pounds of Ranbax processed in T
Total net revenues ($) from sale of Termix $600
6,000
$2,350
1,000
2,000
3,000 4,000
$1,800 $2,100 $2,250
5,000
$1,200](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6e9570c2-32aa-42c6-8548-5168854b1515%2F11bb7456-40db-4d74-b861-5bf46235d5a4%2Fvciu9.jpeg&w=3840&q=75)
Transcribed Image Text:Transfer pricing, perfect and imperfect markets. Letang Company has three divisions (R, S, and
T), organized as decentralized profit centers. Division R produces the basic chemical Ranbax, in multiples
of 1,000 pounds, and transfers it to divisions S and T. Division S processes Ranbax into the final product
Syntex, and division T processes Ranbax into the final product Termix. No material is lost during processing.
Division R has no fixed costs. The variable cost per pound of Ranbax is $0.18. Division R has a capacity
limit of 10,000 pounds. Divisions S and T have capacity limits of 4,000 and 6,000 pounds, respectively. Divi-
sions S and T sell their final product in separate markets. The company keeps no inventories of any kind.
The cumulative net revenues (i.e., total revenues – total processing costs) for divisions S and T at vari-
ous output levels are summarized below.
Division S
Pounds of Ranbax processed in S
Total net revenues ($) from sale of Syntex
4,000
$1,100 $1,200
1,000
2,000
3,000
$ 500
$ 850
Division T
Pounds of Ranbax processed in T
Total net revenues ($) from sale of Termix $600
6,000
$2,350
1,000
2,000
3,000 4,000
$1,800 $2,100 $2,250
5,000
$1,200
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