Sanchez & Sons is a Mexican baked-goods manufacturing firm. Sanchez has two main divisions: Packaged Mixes and Finished Products. The Finished Products division is considering purchasing the mix for its churros from an outside supplier.
The Packaged Mixes department incurs the following costs for each batch of churros mix:
Direct Materials: $300
Direct Labor: $200
Variable Overhead: $200
Fixed Overhead: $150
In addition to the cost of the churros mix, the Finished Products Department would incur the following costs for each batch of churros:
Direct Materials: $150
Direct Labor: $140
Variable Overhead: $300
Fixed Overhead: $100
The current market price from an outside supplier for the quantity of mix needed by the Finished Products department is $800. The finished churros from each batch of mix will sell for $1,500.
What is the range of transfer prices within which the two departments could agree on a price to maximize Sanchez & Sons' profit?

Question

Sanchez & Sons is a Mexican baked-goods manufacturing firm. Sanchez has two main divisions: Packaged Mixes and Finished Products. The Finished Products division is considering purchasing the mix for its churros from an outside supplier. 
The Packaged Mixes department incurs the following costs for each batch of churros mix:
Direct Materials: $300
Direct Labor: $200
Variable Overhead: $200
Fixed Overhead: $150
In addition to the cost of the churros mix, the Finished Products Department would incur the following costs for each batch of churros:
Direct Materials: $150
Direct Labor: $140
Variable Overhead: $300
Fixed Overhead: $100
The current market price from an outside supplier for the quantity of mix needed by the Finished Products department is $800. The finished churros from each batch of mix will sell for $1,500.
What is the range of transfer prices within which the two departments could agree on a price to maximize Sanchez & Sons' profit?

Quizplus · Accepted Answer

The Answer of Sanchez & Sons is a Mexican baked-goods manufacturing firm. Sanchez has two main divisions: Packaged Mixes and Finished Products. The Finished Products division is considering purchasing the mix for its churros from an outside supplier. 
The Packaged Mixes department incurs the following costs for each batch of churros mix:
Direct Materials: $300
Direct Labor: $200
Variable Overhead: $200
Fixed Overhead: $150
In addition to the cost of the churros mix, the Finished Products Department would incur the following costs for each batch of churros:
Direct Materials: $150
Direct Labor: $140
Variable Overhead: $300
Fixed Overhead: $100
The current market price from an outside supplier for the quantity of mix needed by the Finished Products department is $800. The finished churros from each batch of mix will sell for $1,500.
What is the range of transfer prices within which the two departments could agree on a price to maximize Sanchez & Sons' profit?

Sanchez & Sons Is a Mexican Baked-Goods Manufacturing Firm