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Corrugated, Inc. has many divisions that are evaluated on the basis of ROI. One division, the Box Division, makes boxes. The Candy Division makes candy and needs 50,000 boxes per year. The Box Division incurs the following costs for one box:
The Box Division has capacity to make 500,000 boxes per year. The Candy Division currently buys its boxes from an outside supplier for $1.40 each (the same price that the Box Division receives) .
-Refer to the Figure.Assume that Corrugated,Inc.allows division managers to negotiate the transfer price.The Box Division is producing 400,000 boxes.Suppose the Box Division and the Candy Division agree to transfer boxes.What would be the floor of the bargaining range and which division sets it?
Lumber Mill
A facility where logs are cut into timber, undergoing processes from debarking to sawing and sometimes further processing.
Board Feet
A volume measurement used in the lumber industry, equivalent to a piece of wood that is one foot long, one foot wide, and one inch thick.
Responsibility Accounting System
An accounting system that measures the results of each responsibility center and relates them to managers responsible for those centers.
Controllable Costs
Expenses that can be modified or managed by a decision-maker within an organization, including costs like supplies and advertising.
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