Mathes Corporation manufactures paper products. The company operates a landfill,
ID: 2542385 • 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 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:
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.
b. Compute the total variable costs for a 6-ton load of trash from one of the plants. (Do not round intermediate calculations.)
Volume of trash 1,400 tons (200 loads) Preparation costs (varies by loads) $ 56,000 Other variable costs (varies by tons) 56,000 Fixed costs 164,000 Total budgeted costs $ 276,000Explanation / Answer
A. Optimal Transfer Price = (Preparation costs + Other variable costs + Fixed costs ) / Budgeted Trash Tones
= ($ 56,000 + $ 56,000 + $ 164,000) / 1400 Tons
= $ 276,000 / 1400 Tons
= $ 197.14 Per Ton Cost or Optimal Transfer Price
B . total variable costs for a 6-ton load of trash from one of the plants
= Preparation costs per Unit * One plants Load per truck + Other variable costs * One plants Load per truck
= (56000 / 1400) * 6 + (56000 / 1400) * 6
=$ 240 + $ 240
=$ 520 Will be the total variable costs for a 6-ton load of trash from one of the plants