The Mixed Nuts Division of Yummy Snacks, Inc. had the following operating result

Question

The Mixed Nuts Division of Yummy Snacks, Inc. had the following operating results last year:

Yummy expects identical operating results in the division this year. The Mixed Nuts Division has the ability to produce and sell 200,000 pounds of product annually. Assume that the Trail Mix Division of Yummy wants to purchase an additional 20,000 pounds of nuts from the Mixed Nuts Division. Mixed Nuts will be able to increase its profit by accepting any transfer price above:

$0.25 per pound

$0.08 per pound

$0.15 per pound

$0.30 per pound

$0.10 per pound

Sales (140,000 pounds of product) $70,000 Variable expenses 42,000 Contribution margin $28,000 Fixed expenses 12,000 Income $16,000

Explanation / Answer

Income Statement (Present) $ % Sales (140,000 pounds of product)        70,000 100% Variable expenses        42,000 60% Contribution margin        28,000 40% Fixed expenses        12,000 Income        16,000 23% Profit per pound = 16,000/140,000 = $0.11 per pound Income Statement (if accept the offer) $ % Sales (160,000 pounds of product)        80,000 100% Variable expenses        48,000 60% Contribution margin        32,000 40% Fixed expenses        12,000 Income        20,000 25% Profit per pound = 20,000/160,000 = $0.125 per pound

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