Corrugated, Inc The Box Division Has Capacity to Make 500,000 Boxes Per

question 132

Multiple Choice

Corrugated, Inc.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: $$\begin{array} { l c } \text { Direct materials } & \$ 0.20 \\\text { Direct labour } & 0.70 \\\text { Variable overhead } & 0.10 \\\text { Fixed overhead } & \underline { 0.23 } \\\text { Total } & \underline { \$ 1.23 }\end{array}$$ 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 Corrugated, Inc. Assume the company 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?

• A) $1.00; Box Division
• B) $1.00; Candy Division
• C) $1.40; Box Division
• D) $1.40; Candy Division

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Definitions:

Telencephalon

The anterior part of the forebrain, encompassing the cerebral hemispheres, responsible for complex functions including voluntary movement and sensory integration.

Anterior Pituitary

The front portion of the pituitary gland, responsible for releasing hormones that regulate various physiological processes.

Ectoderm

The outermost layer of cells or tissue of an embryo in early development, giving rise to the epidermis and nervous system.

Oral Cavity

The mouth; consists of the space surrounded by the lips, cheeks, teeth, and palate; limited posteriorly by the fauces.