Question

question 1

greenlawn ltd has two divisions distribution and production the company primary product is fertilizer each division costs are provided below:

production :

variable costs per kilogram $0.05

fixed costs per kilogram $0.25

distribution :

variable costs per kilogram $0.03

fixed costs per kilogram $0.02

the distribution division has been operating at a capacity of 4000000 kilogram a week and usually purchases 2000000 kilograms from the production division and 2000000 kilograms from other suppliers at $0.45 per kilogram

1)what is the transfer price per kilogram from the production division to the distribution division assuming the method used to place a value on each kilogram of fertilizer is 160% of variable costs ?

1-$0.05

2-$0.40

3-$0.11

4-$0.08

5-$0.48

2)assume 100000 kilograms are transferred from the production division to the distribution division for a transfer price of $0.40 per kilogram the distribution division sells the 100000 kilograms at a price of $0.55 each to customers what is the company operating income ?

1-0

2-10000

3-15000

4-20000

5-25000

Answer 1

1
	Variable Cost of Production Division	0.05
	Transfer Price (160% of Above)	0.08
	Answer is 4 (0.08)
2		Production Division	Distribution Division
	Units Transferred	100000
	Revenue from Sale (100000*0.55)		55000
	Less: Cost Incurred
	Cost from Transfer(100000*0.40)		40000
	Net Income	0	15000