Chapter 22_Solutions_COMPLETE

Chapter 22_Solutions_COMPLETE - 22-1 CHAPTER 22 MANAGEMENT...

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22-1 CHAPTER 22 MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS 22-19 Transfer-pricing methods, goal congruence. 1. Alternative 1: Sell as raw lumber for $200 per 100 board feet: Revenue $200 Variable costs 100 Contribution margin $100 per 100 board feet Alternative 2: Sell as finished lumber for $275 per 100 board feet: Revenue $275 Variable costs: Raw lumber $100 Finished lumber 125 225 Contribution margin $ 50 per 100 board feet British Columbia Lumber will maximize its total contribution margin by selling lumber in its raw form. An alternative approach is to examine the incremental revenues and incremental costs in the Finished Lumber Division: Incremental revenues, $275 $200 $ 75 Incremental costs 125 Incremental loss $ (50) per 100 board feet 2. Transfer price at 110% of variable costs: = $100 + ($100 0.10) = $110 per 100 board feet Sell as Raw Lumber Sell as Finished Lumber Raw Lumber Division Division revenues Division variable costs Division operating income Finished Lumber Division Division revenues Transferred-in costs Division variable costs Division operating income $200 100 $100 $ 0 $ 0 $110 100 $ 10 $275 110 125 $ 40
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