Springer Company Produces and Sells Home-Ground Wheat Flour $~ ~~~ ~~$

question 23

Short Answer

Springer Company produces and sells home-ground wheat flour.The flour mill division sells to the general public in its outlet store located at the mill.The mill division also is the supplier of flour for its bakery division located across the street from the flour mill.The following information has been collected by Springer's controller:
Production capacity $~ ~~~ ~~$$~~~~~~~~$ 20,000 pounds
Selling price $~~~~~~~~$$~~~~~~~~$$~~~~~~~~$ $0.90 per pound
Variable production cost $~~~~~~~~$ $0.20 per pound
Variable selling cost $~~~~~ ~$$~~~~~~~~$ $0.08 per pound

Number of pounds needed by the bakery $~~~~~~~~$ 6,000

If the flour mill transfers flour to the bakery,it can avoid $0.03 of the variable selling cost.

a.If the flour mill can only sell 12,000 pounds at its outlet store to outside customers,what is the lowest acceptable transfer price per pound that the flour mill division should accept?

b.If the flour mill can sell all 20,000 pounds at its outlet store to outside customers,what is the lowest acceptable transfer price per pound the flour mill division should accept?

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Definitions:

Price Elasticity

An indicator of the responsiveness of the quantity of a product demanded to its price change, represented in terms of percentage variation.

Demand Curve

An illustration depicting the correlation between a product's price and the level of demand from buyers, often characterized by a descending trajectory.

MR

Marginal Revenue, which is the increase in revenue resulting from the sale of one additional unit of a product.

Output Level

The amount of output produced by a firm or an industry within a certain period.