Solved: Your company produces cookies in a two step

process The Mixing

Your company produces cookies in a two step process The Mixing

Your company produces cookies in a two-step process. The Mixing Division prepares the cookie
dough and transfers it to the Baking Division, which bakes the cookies and packs all finished
cookies for shipment.
At a recent meeting of your company’s board of directors, the manager of the Baking
Department made this statement: “That Mixing Division is robbing us blind!” Because of the
board’s concern about this statement, the company controller gathered the following data for
the past year:

During the year, the two divisions completed and transferred or shipped 200,000 regular cookie
boxes and 150,000 deluxe cookie boxes. Transfer prices used by the Mixing Division were as
follows:
Regular ................$3.50
Deluxe ...................6.00
The regular box wholesales for $8.60 and the deluxe box for $22.00. The company uses a
predetermined formula to allocate administrative costs to the divisions. Management has
indicated that the transfer price should include a 20 percent profit factor on total division costs.
Instructions
Prepare a performance report on the Mixing Division
Prepare a performance report on the Baking Division
Compute each division’s rate of return on controllable costs and on total division costs.
Do you agree with the statement made by the manager of the Baking Division? Explain your
response.
What procedures would you recommend to the board ofdirectors?

Your company produces cookies in a two step process The Mixing

ANSWER
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