Question

In: Accounting

Problem 9-42A Wood Inc. manufactures wood poles. Wood has two responsibility centres, harvesting and sawing, which...

Problem 9-42A

Wood Inc. manufactures wood poles. Wood has two responsibility centres, harvesting and sawing, which are both evaluated as profit centres. The harvesting division does all the harvesting operations and transfers logs to the sawing division, which converts the wood into poles for external clients. When operating at full capacity, the sawing division can convert 15,000 poles. Management is considering replacing this type of wood pole with another type of wood pole that can be sold at a lower price and could allow the firm to operate at full capacity all the time.

The director of the sawing division suggested that the maximum price the division can pay for each log from harvesting is $30.40. Following is the information that supports this suggestion:
Price per pole that the client would pay $92
Direct labour costs $35.00
Variable overhead costs 4.00
Fixed overhead costs 8.20
Raw material costs (other than logs) 2.40
49.60
Profit margin 12.00
Total costs and profit margin 61.60
Maximum price for a log $30.40


The director of the harvesting division disagrees with selling the logs at a price of $30.40. The division is operating at full capacity and sells logs to external clients for $45.00. Moreover, the director says, “My direct labour costs are $23.30, my variable overhead costs are $4.30, and my fixed overhead costs are $9.10. I can’t cut trees for $36.70 and sell them for $30.40.”
Assuming production is at full capacity, determine whether Wood Inc., as a whole, would make a higher profit if logs were transferred to the sawing division for $30.40 per log.
Contribution margin from selling logs $
Contribution margin from selling poles $
It would be

beneficialnot beneficial

for Wood Inc, to transfer the logs at $30.40.
Calculate the minimum and maximum transfer prices that could be used, and recommend an appropriate transfer price. (Round answers to 2 decimal places, e.g. 15.25.)

Minimum transfer price $
Maximum transfer price $
Appropriate transfer price $

Solutions

Expert Solution


Related Solutions

SkyAir, a large multi-national airline has many responsibility centres. A. The South American division, which is...
SkyAir, a large multi-national airline has many responsibility centres. A. The South American division, which is responsible for operations in South America and has the authority to purchase new aircraft and add/cut routes. B. The Pilot Training group, which is responsible for training new SkyAir pilots. C. The reservations group, which is responsible for making SkyAir reservations D. The maintenance division, which is responsible for SkyAir aircraft maintenance. As well, from time-to-time will also do maintenance for other airlines, but...
9) younger, Inc. manufactures recliners for the hotel industry. It has two products, the Heater and...
9) younger, Inc. manufactures recliners for the hotel industry. It has two products, the Heater and the Massager, and total overhead is $3,160,000. The company plans to manufacture 400 Heaters and 100 Massagers this year. In manufacturing the recliners, the company must perform 600 material moves for the Heater and 400 for the Massager; it processes 900 purchase orders for the Heater and 700 for the Massager; and the company’s employees work 1,400 direct labor hours on the Heater product...
ForestLand Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood...
ForestLand Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood and Softwood. Hardwoods are used for flooring, cabinetry, paneling, doors and trimwork. Softwoods are used for wall studs, joists, planks, rafters, beams, stringers, posts, decking, subflooring and concrete forms. ForestLand also sells a by-product, wood shavings and saw dust. Shavings are purchased for farm and industrial use as well as for further processing into wood pellets and fiber board. The revenue is allocated to...
ForestLand Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood...
ForestLand Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood and Softwood. Hardwoods are used for flooring, cabinetry, paneling, doors and trimwork. Softwoods are used for wall studs, joists, planks, rafters, beams, stringers, posts, decking, subflooring and concrete forms. ForestLand also sells a by-product, wood shavings and saw dust. Shavings are purchased for farm and industrial use as well as for further processing into wood pellets and fiber board. The revenue is allocated to...
ForestLand Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood...
ForestLand Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood and Softwood. Hardwoods are used for flooring, cabinetry, paneling, doors and trimwork. Softwoods are used for wall studs, joists, planks, rafters, beams, stringers, posts, decking, subflooring and concrete forms. ForestLand also sells a by-product, wood shavings and saw dust. Shavings are purchased for farm and industrial use as well as for further processing into wood pellets and fiber board. The revenue is allocated to...
Question: ForestLand Wood Products manufactures lumber and wood components. The company has two main produc... ForestLand...
Question: ForestLand Wood Products manufactures lumber and wood components. The company has two main produc... ForestLand Wood Products manufactures lumber and wood components. The company has two main product lines: Hardwood and Softwood. Hardwoods are used for flooring, cabinetry, paneling, doors and trimwork. Softwoods are used for wall studs, joists, planks, rafters, beams, stringers, posts, decking, subflooring and concrete forms. ForestLand also sells a by-product, wood shavings and saw dust. Shavings are purchased for farm and industrial use as well...
Excel #2 Problem and Data CedarWorks manufactures playground equipment from Northern White Cedar wood which is...
Excel #2 Problem and Data CedarWorks manufactures playground equipment from Northern White Cedar wood which is free of all chemical additives and never splinters. The current manufacturing process is heavily labor intensive, so the company is studying ways to improve profits given that it currently has a significant amount of unused capacity. CedarWorks contribution margin income statement for the month of December 31, 2017 is given below:                                                                                                    Total                        Per Unit          Sales                                                                $4,500,000      $3,000             Variable expenses                                           ...
Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the...
Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the construction industry). The following information is for the production of these trusses for the month of February: Work-in-process inventory, February 1 4,700 trusses Direct materials: 100% complete $ 11,180 Conversion: 40% complete $ 15,958 Units started during February 18,700 trusses Units completed during February and transferred out 17,700 trusses Work-in-process inventory, February 29 Direct materials: 100% complete Conversion: 20% complete Costs incurred during February...
Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the...
Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the construction industry). The following information is for the production of these trusses for the month of February: Work-in-process inventory, February 1 3,300 trusses Direct materials: 100% complete $ 10,380 Conversion: 30% complete $ 15,158 Units started during February 17,900 trusses Units completed during February and transferred out 16,900 trusses Work-in-process inventory, February 29 Direct materials: 100% complete Conversion: 30% complete Costs incurred during February...
Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the...
Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the construction industry). The following information is for the production of these trusses for the month of February: Work-in-process inventory, February 1 3,700 trusses Direct materials: 100% complete $ 10,180 Conversion: 20% complete $ 14,958 Units started during February 17,700 trusses Units completed during February and transferred out 16,700 trusses Work-in-process inventory, February 29 Direct materials: 100% complete Conversion: 40% complete Costs incurred during February...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT