The Eucalypt Forestry Company Has Two Divisions

question 53

Essay

The Eucalypt Forestry Company has two divisions.The Cutting Division prepares timber at its sawmills.The Assembly Division prepares the cut timber into finished wood for the furniture industry.No inventories exist in either division at the beginning of 2018.During the year,the Cutting Division prepared 60 000 cubic meters of wood at a cost of $660 000.All the timber was transferred to the Assembly Division,where additional operating costs of $6 per cubic meter were incurred.The 600 000 board metres of finished wood were sold for $2 500 000.
Required:
a.Determine the operating profit for each division if the transfer price from Cutting to Assembly is at cost - $11 a cubic meter.
b.Determine the operating profit for each division if the transfer price is $9 per cubic meter.
c.Since the Cutting Division sells all of its wood internally to the Assembly Division,does the manager care what price is selected? Why? Should the Cutting Division be a cost centre or a profit centre under the circumstances?
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Definitions:

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity, allowing for more accurate budgeting.

Customers Served

The number of customers who receive service or products from a business during a specific time period.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels, allowing for more accurate budgeting in variable cost scenarios.

Patient-Visits

A measure used in healthcare to denote the number of times patients see a healthcare provider or visit a healthcare facility.