Mathes Corporation manufactures paper products. The company operates a landfill,

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 seven 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 400 tons (200 loads) Volume of trash Preparation costs (varies by loads) Other variable costs (varies by tons) Fixed costs S 56,000 56,000 164,000 Total budgeted costs $276,000 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 transfer ton per load b. Compute the total variable costs for a 6-ton load of trash from one of the plants. (Do not round intermediate calculations.) I variable cost per load

Explanation / Answer

a

Optimal Tranfer price shall be the variable cost becuase company have sufficecnt capacity hence fixed cost is ignored

Optimal transfer price per ton =56000/1400 =$ 40 per ton

Optimal transfer price per load =56000/200=$ 280 per Load

b

=40 per ton *6 + $280 per Load =$520

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