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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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