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

question 96

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 500,000 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) $1.23; Box Division
• B) $1.23; Candy Division
• C) $1.40; Box Division
• D) $1.40; Candy Division

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