Question

Shaw is a lumber company that also manufactures custom cabinetry. It is made up of two divisions: Lumber and Cabinetry. The Lumber Division is responsible for harvesting and preparing lumber for use; the Cabinetry Division produces custom-ordered cabinetry: The lumber produced by the Lumber Division has a variable cost of $2.00 per linear foot and full cost of $3.00 Comparable quality wood sells on the open market for $6.00 per linear foot Required: 1. Assume you are the manager of the Cabinetry Division Determine the maximum amount you would pay for lumber 2. Assume you are the manager of the Lumber Division. Determine the minimum amount you would charge for the lumber if you have excess capacity. Repeat assuming you have no excess capacity 3. Assume you are the president of Show. Determine mutually beneficial transfer price assuming there is excess capacity Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Assume you are the manager of the Cabinetry Division. Determine the maximum amount you would pay for lumber Maximum Price Required 2 >

Answer 1

1. Maxmum Price of $6 would be paid by Cabinetry Division because a same price lumber can be procured from open Market

2. If Lumber Division is having a excess capacity , they would charge only variable cost :$2 per linear Foot

If Lumber Division is not having a excess capacity , they would charge   minimum price of $6 that would be prevailing in market .

3. A mutually benefit transfer price is between the minimum $2 and maximum $6. If it were set at $3, the divisions would receive benefits equally from internal transfer. The selling division makes $1above variable costs ($3 - 2), whereas the buying division saves $3in the open market price ($6 - $3).