The Fizzy Drink Company is a large factory that produces soft drinks in a variety of flavors. Recently the Diet Drink division has been increasing production and is looking to obtain pricing on materials from a variety of vendors, both internally and externally for their bottling needs. Supplier A offered to sell them bottles for $0.80 per bottle for the first 10,000, $0.78 for the next 10,000 bottles, $0.76 for the next 15,000, and $0.73 for any remaining bottles. Supplier B offered to sell them bottles for $0.75 for the first 50,000 bottles and $0.74 for any remaining bottles. Supplier A is going to add 2% surcharge for shipping and handling costs, and Supplier B is going to add a 1.5% surcharge for shipping and handling costs. The Diet Drink division has also put in an inquiry with their internal Bottle division who currently has a capacity of 233,600 bottles, leaving some capacity idle. They have reported the following numbers for the year: The Diet Drink division is looking to order 76,430 bottles and will need to perform an analysis before making a final decision. (Do not round intermediate calculations.)
a. What is the variable cost, contribution margin, and absorption cost of each unit sold by the Bottle Division? What is the minimum acceptable transfer price if the internal Bottle division agrees to supply required bottles to the Diet Drink division?
b. What are the overall prices quoted by Supplier A and Supplier B for 76,430 bottles?
c. What is the overall price quoted by the Internal Bottle Division? Which offer is the Diet Division most likely to pursue, and why? Support your conclusion.

Question

The Fizzy Drink Company is a large factory that produces soft drinks in a variety of flavors. Recently the Diet Drink division has been increasing production and is looking to obtain pricing on materials from a variety of vendors, both internally and externally for their bottling needs. Supplier A offered to sell them bottles for $0.80 per bottle for the first 10,000, $0.78 for the next 10,000 bottles, $0.76 for the next 15,000, and $0.73 for any remaining bottles. Supplier B offered to sell them bottles for $0.75 for the first 50,000 bottles and $0.74 for any remaining bottles. Supplier A is going to add 2% surcharge for shipping and handling costs, and Supplier B is going to add a 1.5% surcharge for shipping and handling costs. The Diet Drink division has also put in an inquiry with their internal Bottle division who currently has a capacity of 233,600 bottles, leaving some capacity idle. They have reported the following numbers for the year:  The Diet Drink division is looking to order 76,430 bottles and will need to perform an analysis before making a final decision. (Do not round intermediate calculations.) 
a. What is the variable cost, contribution margin, and absorption cost of each unit sold by the Bottle Division? What is the minimum acceptable transfer price if the internal Bottle division agrees to supply required bottles to the Diet Drink division?
b. What are the overall prices quoted by Supplier A and Supplier B for 76,430 bottles?
c. What is the overall price quoted by the Internal Bottle Division? Which offer is the Diet Division most likely to pursue, and why? Support your conclusion.

Quizplus · Accepted Answer

The Answer of The Fizzy Drink Company is a large factory that produces soft drinks in a variety of flavors. Recently the Diet Drink division has been increasing production and is looking to obtain pricing on materials from a variety of vendors, both internally and externally for their bottling needs. Supplier A offered to sell them bottles for $0.80 per bottle for the first 10,000, $0.78 for the next 10,000 bottles, $0.76 for the next 15,000, and $0.73 for any remaining bottles. Supplier B offered to sell them bottles for $0.75 for the first 50,000 bottles and $0.74 for any remaining bottles. Supplier A is going to add 2% surcharge for shipping and handling costs, and Supplier B is going to add a 1.5% surcharge for shipping and handling costs. The Diet Drink division has also put in an inquiry with their internal Bottle division who currently has a capacity of 233,600 bottles, leaving some capacity idle. They have reported the following numbers for the year:  The Diet Drink division is looking to order 76,430 bottles and will need to perform an analysis before making a final decision. (Do not round intermediate calculations.) 
a. What is the variable cost, contribution margin, and absorption cost of each unit sold by the Bottle Division? What is the minimum acceptable transfer price if the internal Bottle division agrees to supply required bottles to the Diet Drink division?
b. What are the overall prices quoted by Supplier A and Supplier B for 76,430 bottles?
c. What is the overall price quoted by the Internal Bottle Division? Which offer is the Diet Division most likely to pursue, and why? Support your conclusion.

The Fizzy Drink Company Is a Large Factory That Produces