Mathes Corporation manufactures paper products. The company operates a landfill,
ID: 2396976 • Letter: M
Question
Mathes Corporation manufactures paper products. The company operates a landfill, which it uses to dispose of nonhazardous trash. The trash is hauled from the two nearby manufacturing facilities in trucks that can carry up to five tons of trash in a load. The landfill operation requires certain preparation activities regardless of the amount of trash in a truck (i.e., for each load). The budget for the landfill for next year follows Volume of trash Preparation costs (varies by loads) Other variable costs (varies by tons) Fixed costs 1,500 tons (300 loads) 63,000 63,000 154,000 $ 280,000 Total budgeted costs Mathes is considering making the landfill a profit center and charging the manufacturing plants for disposal of the trash. The landfill has sufficient capacity to operate for at least the next 20 years. Other landfills are available in the area (both private and municipal), and each plant would be free to decide which landfill to use Required: a. Compute the optimal transfer price ton per load b. Compute the total variable costs for a 4-ton load of trash from one of the plants. (Do not round intermediate calculations.) per loadExplanation / Answer
Budget for Landfill
Volume of Trash
1500 Tons
Therefore 5 tons
per Load
(300 Loads)
Preparation Cost (varies by load)
63,000
Other Variable Cost (varies by ton)
63,000
Fixed Cost
1,54,000
Total Budgeted Cost
2,80,000
Solution
A
Optimal Transfer Price
Per Ton
Per Load
(154000+63000)/1500
(154000+63000)/300
144.67
723.33
B
Total Variable cost for 4 ton Load of Trash
Total Variable cost (63000+63000)
1,26,000
Loads
300
Variable cost per Load (1,26,000/300)
420
1 Load has 5 tons so for 4 tons (420*4/5)
336
Budget for Landfill
Volume of Trash
1500 Tons
Therefore 5 tons
per Load
(300 Loads)
Preparation Cost (varies by load)
63,000
Other Variable Cost (varies by ton)
63,000
Fixed Cost
1,54,000
Total Budgeted Cost
2,80,000
Solution
A
Optimal Transfer Price
Per Ton
Per Load
(154000+63000)/1500
(154000+63000)/300
144.67
723.33
B
Total Variable cost for 4 ton Load of Trash
Total Variable cost (63000+63000)
1,26,000
Loads
300
Variable cost per Load (1,26,000/300)
420
1 Load has 5 tons so for 4 tons (420*4/5)
336