The Raisin Division of Trail Mix Foods,Inc.had the following operating results last year:
$$\begin{array} { | l | r | }
\hline \text { Sales } ( 150,000 \text { pounds of raisins) } & \$ 60,000 \
\hline \text { Variable expenses } & 37,500 \
\hline \text { Contribution margin } & 22,500 \
\hline \text { Fixed expenses } & 12,000 \
\hline \text { Profit } & \$ 10,500 \
\hline
\end{array}$$ Raisin expects identical operating results this year.The Raisin Division has the ability to produce and sell 200,000 pounds of raisins annually.Assume that the Peanut Division of Trail Mix Foods wants to purchase an additional 20,000 pounds of raisins from the Raisin Division.Raisin will be able to increase its profit by accepting any transfer price above:

Question

The Raisin Division of Trail Mix Foods,Inc.had the following operating results last year:
$$\begin{array} { | l | r | } 
\hline \text { Sales } ( 150,000 \text { pounds of raisins) } & \$ 60,000 \
\hline \text { Variable expenses } & 37,500 \
\hline \text { Contribution margin } & 22,500 \
\hline \text { Fixed expenses } & 12,000 \
\hline \text { Profit } & \$ 10,500 \
\hline
\end{array}$$ Raisin expects identical operating results this year.The Raisin Division has the ability to produce and sell 200,000 pounds of raisins annually.Assume that the Peanut Division of Trail Mix Foods wants to purchase an additional 20,000 pounds of raisins from the Raisin Division.Raisin will be able to increase its profit by accepting any transfer price above:

Quizplus · Accepted Answer

The correct answer is A because the variable cost per pound is $0.25 ($37,500 / 150,000 pounds). Any transfer price above this amount will increase the Raisin Division's profit.

The Raisin Division of Trail Mix Foods,Inc Raisin Expects Identical Operating Results This Year