Sugar Company Has Two Divisions,Lenox and Berkshire

question 126

Essay

Sugar Company has two divisions,Lenox and Berkshire.Lenox produces an item that Berkshire could use in its production.Berkshire currently is purchasing 100,000 units from an outside supplier for $43 per unit.Lenox is currently operating at full capacity of 750,000 units and has variable costs of $28 per unit.The full cost to manufacture the unit is $35.Lenox currently sells 750,000 units at a selling price of $44 per unit.
a.What will be the effect on Sugar Company's operating profit if the transfer is made internally?
b.What will be the change in profits for Lenox if the transfer price is $40 per unit?
c.What will be the change in profits for Berkshire if the transfer price is $40 per unit?

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Definitions:

BCG Analysis

A strategic planning tool that classifies a company's business units or products into four categories based on market share and market growth, guiding resource allocation decisions.

National Business Ethics Survey

A research study that gathers and analyzes data on the ethical behaviors, attitudes, and cultures within businesses.

Ethical

Pertaining to or dealing with morals or principles of morality; pertaining to right and wrong in conduct.

Sociocultural

Refers to the social and cultural aspects and phenomena that influence the behavior of societies and individuals.