Shaw is a lumber company that also manufactures custom cabinetry. It is made up

Question

Shaw is a lumber company that also manufactures custom cabinetry. It is made up of two divisions: Lumber and Cabinetry. The Lumber Division is responsible for harvesting and preparing lumber for use; the Cabinetry Division produces custom-ordered cabinetry. The lumber produced by the Lumber Division has a variable cost of $3.40 per linear foot and full cost of $4.40. Comparable quality wood sells on the open market for $10.20 per linear foot.

Required:

1.

Assume you are the manager of the Cabinetry Division. Determine the maximum amount you would pay for lumber.

2.

Assume you are the manager of the Lumber Division. Determine the minimum amount you would charge for the lumber if you have excess capacity. Repeat assuming you have no excess capacity.

Minimum Price with Excess Capacity

Minimum Price without Excess Capacity

3.

Assume you are the president of Shaw. Determine a mutually beneficial transfer price assuming there is excess capacity. (Round your answer to 2 decimal places.)

Shaw is a lumber company that also manufactures custom cabinetry. It is made up of two divisions: Lumber and Cabinetry. The Lumber Division is responsible for harvesting and preparing lumber for use; the Cabinetry Division produces custom-ordered cabinetry. The lumber produced by the Lumber Division has a variable cost of $3.40 per linear foot and full cost of $4.40. Comparable quality wood sells on the open market for $10.20 per linear foot.

Explanation / Answer

3. A mutually benefit transfer price is between the minimum ($3.40) and maximum ($10.20). If it were set at $4.40, the divisions would receive benefits equally from internal transfer. The selling division makes $3.40 above variable costs ($4.40 - $3.40), whereas the buying division saves $3.40 in the open market price ($10.20 - $4.40).

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.