Please help with all parts. Thank you. Sorry for the blurry picture. The followi

Question

Please help with all parts. Thank you. Sorry for the blurry picture. The following link has a clearer version.

https://drive.google.com/file/d/1JewGuDcB912tPFUpM_f300ucNTSZ3uIX/view?usp=sharing

Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: Selling price Expense:s ariable Fixed based on a capacity of 97,800 tons per year) 6 22 Net operating Income Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently purchasing 28,000 tons of pulp per year from a supplier at a cost of $25 per ton, less a 10% purchase discount. Hrubec's president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if an acceptable transfer price can be worked out Required: For(1 and (2) below, assume the Pulp Division can sell all of its pulp to outside customers for $25 per ton. 1. What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton Division? What is the range of acceptable transfer prices (if any) between the two divisions? Are the managers of the Carton and Pulp Divisions ikely to voluntarily agree to a transfer price for 28,000 tons of pulp next year? 2M the Pulp Division meets the price that the Carton Division is currently paying to its supplier and sells 28,000 ton$ of pulp to the Carton Division each year, what wil be the effect on the profits of the Pulp Division, the Carton Division, and the company as a whole? For (3-(6) below, assume that the Pulp Division is currently selling only 59,000 tons of pulp each year to outside customers at the stated $25 price 3. What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton Division? What is the range of acceptable transfer prices (if any) between the two divisions? Are the managers of the Carton and Pulp Divisions ikely to voluntarily agree to a transfer price for 28,000 tons of pulp next year? 4-a. Suppose the Carton Division's outside supplier drops its price (net of the purchase discount) to only $21 per ton. Should the Pulp Division meet this price? 4-b. If the Pulp Division does not meet the $21 price, what will be the effect on the profits of the company as a whole? 5. Refer to (4) above. If the Pulp Division refuses to meet the $21 price, should the Carton Division be required to purchase from the Pulp Division at a highe 6. Refer to (4) above. Assume that due to inflexible management policies, the Carton Division is required to purchase 28,000 tons of pulp each year from the Pulp Division at $25 per ton. What will be the effect on the profits of the company as a whole? r price for the goo d of the company as a Idontiy the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices There is a range of acceptabla transfer pricas as shown below Transfer price Aro the managors likoly to voluntarily agroo to a transfor price for 28,000 tons of pulp noxt yoar? No a. Profits of the Pulp Division will b. Profits of the Carton Division wil c. Profits of the company as a by by by Identify the lowest and highest acoeptabla transfer price5 Lowest acceptable transfer price Highest accoptable transfer price Identify the range of acceptable transfer prices (if any): Thoro is not a rango of accoptablko transfor pricos. There is a range of acoeptable transfer prices as shown below Transfor prica Are the likely to voluntarily agree to a transfer price for 28,000 tons of pulp next year? Ye5 No No c. The company as a wholo will havo ain) in profit by

Explanation / Answer

1. The Minimum Transfer Price is the Cost at which Pulp Division can transfer is at Marginal Cost with Profits Genertared
Assuming Pulp division is operating at full Capacity the Minimum Transfer price is $25

Maximum Transfer Price that can be offered by Carton division is the Price at which it pays to outside vendors
In this case Maximum Transfer price is $22.5 (reducing 10% discount)

Since minimum Price is greater than Maximum TP offered, The Managers will not directly agree for the price

2. The Pulp division lncurers an oppurtunity loss of $70000, There wont be any impact for Carton division, and the Company as a whole also Incurrs an Oppurtunity loss of $70000. the workings are as below

3. SInce there is a Spare Capacity, the Minimum Transfer Price is the Variable COst of the Pulp Division i.e, $16

The Maximum Transfer price is the Price carton division Pays to outside customers i.e., $22.5

Since there is a range of Transfer price from $16 to $22.5, The Managers can negotiate and arrive at the Transfer Price

4a. Since the Price of $21 is greater than teh Minimum Transfer price (Marginal Cost) of $16, Pulp division can still accept the Price

4b. if the Pulp division doesnt accept this price then assuming the order goes to the outsider, pulp will have the current orders of 59000 units and it will be incurring a net loss of $50000 ({25-16)*59000-(97000*6)}

The Carton division will Save $42000 ((22-21.5)*28000), So teh Company as a whole will lose $8000 in net

5. The Carton division can still purchase from Pulp for higher price as it will benefit the company as a whole, but the divisional profits of carton division will be lost

6. The Company will gain overall $182000 but carton division will lose divisional profits

Pulp Cost of Manufacture Per Unit            22.00 Selling Price            22.50 Margin              0.50 No. of Units Sold    28,000.00 Total Margin Generated    14,000.00 Margin Generated from outside Customers    84,000.00 Oppurtunity Lost (70,000.00)

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