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:

Concrete Operations

In developmental psychology, a phase where individuals gain the ability to understand logical operations in tangible situations and solve problems involving physical objects.

Formal Operations

The fourth stage in Piaget’s cognitive-developmental theory, characterized by the capacity for flexible, reversible operations concerning abstract ideas and concepts, such as symbols, statements, and theories.

Word Recognition Method

The word recognition method is a technique used in reading instruction that focuses on the ability to recognize written words quickly and efficiently.

Transitivity

The principle that if A is greater than B in a property and B is greater than C, then A is greater than C.