Read the case study below and answer the questions in the context of this chapter, and your knowledge of managerial accounting. Note: If you are a vegetarian or an animal activist, please do not be offended by the details of this case.
Me-n-U is a very successful hamburger chain located in Florida. One of the main reasons why customers love this burger chain is because of the freshness and the unique taste of the hamburger patties offered by this food establishment.
Me-n-U buys its hamburger patties from a special farm called Lux Living Farm located in Vermont. The cows on this farm receive daily massages and are fed beer instead of water. They are also allowed to roam free over 100 acres of land. These factors contribute to the tenderness of the meat. Worried that this farm will sell its beef to another customer, Me-n-U bought the farm so it would have exclusive rights and access to all of the wonderful beef. In the past, Lux Living Farm charged Me-n-U $25 per pound:
Variable cost per pound $10
Fixed cost per pound $ 10
Total price = $25
1. How should the sale from Lux Living Farm to its parent company, Me-n-U be reported on the consolidated income statement and the stand-alone income statements?
2. What price should be set?
3. Do you agree with the decision in buying the farm? Why or why not?
Incorporate managerial accounting concepts such as opportunity costs, sunk cost, and out-of-pocket costs in your answers. Also, think about how your answers will impact non-controlling interest if present.
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