2. 363 points value: Problem 15-45 Two-Part Transfer Prices (LO 15-1, 2) Mathes
ID: 2520824 • Letter: 2
Question
2. 363 points value: Problem 15-45 Two-Part Transfer Prices (LO 15-1, 2) Mathes Corporation manufactures paper 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 six 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 Preparation costs (varies by loads) Other variable costs (varies by tons) Fixed costs 2,400 tons (400 loads) $84,000 84,000 174,000 Total budgeted costs $ 342,000Explanation / Answer
(a). Optimal transfer price $35 per ton + $210 per load
Explanation;
Per ton other varaible cost will be ($84000 / 2400) = $35 per ton
Per load preparation cost will be ($84000 / 400) = $210 per load
Thus Optimal transfer price will be $35 per ton + $210 per load.
(b). Total variable cost $385 per load
Explanation;
As per information of the question it is clear that preparation cost and other variable cost are variable cost. Hence for knowing toatl variable costs we will have to calculate preparation cost and other variable cost for 5-ton load.
Preparation cost for 5-ton load ($210 * 1) = $210
Other variable cost for 5-ton ($35 * 5) = $175
Thus total variable cost ($210 + $175) = $385
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