Mathes Corporation manufactures paper products. The company operates a landfill,
ID: 2965441 • 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 fiv 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 burdge for the landfill for next year follows:
Volume of trash 1,500 tons (300 loads)
Prepartion costs (varies by loads) $60,000
Other variable costs (varies by tons) $60,000
Fixed costs $150,000
Total budgeted costs $270,000
Mathes is considering making th elandfill a profit center and charging the manufacturing plants for disposing of the trash. The landfill has sufficient capactiy to operate for at least the next 20 years. Other landfills are avaliable in the area (both private and municipal), and each plant would be free to decide which landfill to use.
Required:
Compute the optimal transfer price
Optimal transfer price___________ per ton plus _________ per load
Explanation / Answer
(a) Optimal transfer price = 60000/1500 = $40/ton
plus 60000/300 = $200/load