The C Company is a blueberry cooperative that operates two divisions: a picking division and...
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The C Company is a blueberry cooperative that operates two divisions: a picking division and a processing division. Currently, all Picking's output is converted into blueberry juice by the processing division, and the juice is sold to large beverage companies that produce various juice blends. The processing division has a yield of 2,300 liters of juice per 1,000 kilograms of blueberries. Cost and market price data for the two divisions are as follows:
Picking Division
Processing Division
Variable costs per kilogram of blueberries
$0.3307
Variable processing cost per liter of juice produced
$0.07895
Fixed cost per kilogram of blueberries
0.8267
Fixed costs per liter of juice produced
0.1579
Selling price per kilogram of blueberries
2.1753
Selling price per liter of juice
0.82895
Required: 1. Calculate the operating income per unit for each division for each of the following transfer-pricing methods: (a) 150% of full cost (b) Market price 2. Which transfer-pricing method will each division manager prefer? How might the company resolve any conflicts that may arise on the issue of transfer pricing?
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