Crango Products is a cranberry cooperative that operates two divisions: a harvesting division and a processing division. Currently, all of Harvestingâs output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The processing division has a yield of 1,900 litres of juice per 1,000 kilograms of cranberries. Cost and market price data for the two divisions are as follows:
Required: 1. Compute Crangoâs operating income from harvesting 181,440 kilograms of cranberries during June 2015 and processing them into juice. 2. Crango rewards its division managers with a bonus equal to 5% of operating income. Compute the bonus earned by each division manager in June 2015 for each of the following transfer-pricing methods: a. 200% of full cost b. Market price 3. Which transfer-pricing method will each division manager prefer? How might Crango resolve any conflicts that may arise on the issue of transfer pricing?
A В Harvesting Division 2 Variable costs per kilogram of cranberries $0.2205| 3 Fixed cost per kilogram of cranberries Selling price per kilogram of cranberries 1 Processing Division | Variable processing cost per litre of juice produced Fixed costs per litre of juice produced Selling price per litre of juice $0.05263 per litre 0.1053 per litre 0.55263 per litre 0.5511 4 1.3228