Plank,IncHas a Division That Makes Paint and Another Division That

question 24

Essay

Plank,Inc.has a division that makes paint and another division that constructs subdivisions.The paint division incurs the following costs for one litre of paint:
The Paint Division can make 1,000,000 L per year,and expects to produce 1,000,000 L next year.The Construction Division currently buys 200,000 L of paint from an outside supplier for $5.20 per litre (the same price that the Paint Division receives).
$\begin{array}{lr}\text { Direct materials } & \$ 1.10 \\\text { Direct labour } & 1.45 \\\text { Variable overhead } & 0.90 \\\text { Fixed overhead } & 1.15 \\\text { Total } & \$ 4.60\end{array}$ A. The maximum transfer price per litre of paint is $\$$ _____.
B. The minimum transfer price per litre of $p$ aint is $\$$ _____.
C. Does it matter whether or not the two divisions transfer?

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Definitions:

Great Recession

A significant global economic downturn that began in 2007 and lasted until 2009, marked by widespread financial crises, bank failures, and high unemployment rates.

Deficit

The amount by which a government's, company's, or individual's spending exceeds its income over a particular period of time.

2009

A year that marked the end of the late-2000s financial crisis and the beginning of economic recovery for many countries.

Productivity Growth

An increase in the efficiency of production, often measured as the rate at which an economy can produce goods and services relative to inputs over time.