Pierre & Sons is a baked-goods manufacturing firm. Pierre has two main divisions: Packaged Mixes and Finished Desserts. The Finished Desserts division is considering purchasing the mix for its cakes from an outside supplier.
The Packaged Mixes department incurs the following costs for each batch of cake mix:
In addition to the cost of the cake mix, the Finished Desserts Department would incur the following costs for each batch of cakes:
The current market price from an outside supplier for the quantity of mix needed by the Finished Desserts department is $500. The finished cakes from each batch of mix will sell for $1,000.
What is the range of transfer prices within which the two departments could agree on a price to maximize Pierre & Sons' profit?

Question

Pierre & Sons is a baked-goods manufacturing firm. Pierre has two main divisions: Packaged Mixes and Finished Desserts. The Finished Desserts division is considering purchasing the mix for its cakes from an outside supplier.
The Packaged Mixes department incurs the following costs for each batch of cake mix:
  In addition to the cost of the cake mix, the Finished Desserts Department would incur the following costs for each batch of cakes:
  The current market price from an outside supplier for the quantity of mix needed by the Finished Desserts department is $500. The finished cakes from each batch of mix will sell for $1,000.
What is the range of transfer prices within which the two departments could agree on a price to maximize Pierre & Sons' profit?

Quizplus · Accepted Answer

The Answer of Pierre & Sons is a baked-goods manufacturing firm. Pierre has two main divisions: Packaged Mixes and Finished Desserts. The Finished Desserts division is considering purchasing the mix for its cakes from an outside supplier.
The Packaged Mixes department incurs the following costs for each batch of cake mix:
  In addition to the cost of the cake mix, the Finished Desserts Department would incur the following costs for each batch of cakes:
  The current market price from an outside supplier for the quantity of mix needed by the Finished Desserts department is $500. The finished cakes from each batch of mix will sell for $1,000.
What is the range of transfer prices within which the two departments could agree on a price to maximize Pierre & Sons' profit?

Pierre & Sons Is a Baked-Goods Manufacturing Firm