10 In Lieu of Its Normal Processing,Bones Sometimes Grinds Raw Bones

question 8

Multiple Choice

10. Grammy Girl Products (GGP) has two divisions,Bones and Biscuits,both of which usually have independence in sourcing and pricing decisions.There is an unlimited supply of raw bones.Biscuits manufactures,amongst other items,a specialty product called BisBone.The BisBone formula requires 70% bone meal and 30% cereal per pound,plus a dollop of meat flavoring.BisBone is usually sold in 20-pound cases and processed bones in 5-pound packs.Cost and sales pricing data appears below. $\begin{array}{c}\begin{array}{lll}\\\text {Sales price, per case (pack) }\\\text {Raw bones, per pound}\\\text {Bone meal, per pound (external seller) }\\\text {Cereals, per pound}\\\text {Meat flavoring, per case}\\\text {Processing, per pound}\\\text {Packaging, per case (pack) }\\\text {Overhead per case (nack) , 40 \% fixed} \end{array}\begin{array}{lll}\text {BisBone}\\\$ 100.00\\\\\$ 3.00 \\\$ 0.50 \\\$ 3.00 \\\$ 1.00 \\\$ 1.25 \\\$ 10.00\end{array}\begin{array}{lll}\text {Bone:}\\\$20.00\\\$1.50\\\\\\\\\$0.80\\\$0.75\\\$7.00\end{array}\end{array}$
In lieu of its normal processing,Bones sometimes grinds raw bones into bone meal (grinding costs $0.05 per pound) When bone meal is sold to Biscuits,bulk packaging is used which costs $1 per 100 pound sack;when sold to other firms,it is packed in 50-pound containers,costing $3 each.Bones prices the container product at $180.Biscuits just received an order for 800 cases of one of its specialty products,BisBone,and is contemplating purchasing bone meal from its sister division.
If Bones is at capacity and has sufficient outside customers for the containers,what is the minimum price that it should quote Biscuits per sack of bone meal to maximize GGP's profits?

• A)$245
• B)$360
• C)$297.50
• D)$355
• E)None of the choices are correct

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Definitions:

Activity Drivers

Factors that influence the cost of business activities by determining the level of effort or resources required.

Labour Hours

Refers to the total amount of work time spent by employees, including both direct and indirect labor activities.

Facility-sustaining Activities

Costs and activities associated with maintaining a manufacturing or production facility at an operational status, independent of the actual levels of production.

Batch-level Activities

Operations and tasks performed for a group of units produced as a single batch, costing is aggregated at the batch level.