4 The Better Agriculture Group (BAG), which has a divisional structure, produces a range of products for the farming
industry. Divisions B and C are two of its divisions. Division B sells a fertiliser product (BF) to customers external to
BAG. Division C produces a chemical (CC) which it could transfer to Division B for use in the manufacture of its
product BF. However, Division C could also sell some of its output of chemical CC to external customers of BAG.
An independent external supplier to The Better Agriculture Group has offered to supply Division B with a chemical
which is equivalent to component CC. The independent supplier has a maximum spare capacity of 60,000 kilograms
of the chemical which it is willing to make available (in total or in part) to Division B at a special price of $55 per
kilogram.
Forecast information for the forthcoming period is as follows:
Division B:
Production and sales of 360,000 litres of BF at a selling price of $120 per litre.
Variable conversion costs of BF will amount to $15 per litre.
Fixed costs are estimated at $18,000,000.
Chemical (CC) is used at the rate of 1 kilogram of CC per 4 litres of product BF.
Division C:
Total production capacity of 100,000 kilograms of chemical CC.
Variable costs will be $50 per kilogram of CC.
Fixed costs are estimated at $2,000,000.
Market research suggests that external customers of BAG are willing to take up sales of 40,000 kilograms of CC at a
price of $105 per kilogram. The remaining 60,000 kilograms of CC could be transferred to Division B for use in
product BF. Currently no other market external to BAG is available for the 60,000 kilograms of CC.
Required:
(a) (i) State the price/prices per kilogram at which Division C should offer to transfer chemical CC to Division
B in order that the maximisation of BAG profit would occur if Division B management implement rational
sourcing decisions based on purely financial grounds.
Note: you should explain the basis on which Division B would make its decision using the information
available, incorporating details of all relevant calculations. (6 marks)
正确答案：(a) (i) In order to facilitate BAG profit maximising decisions the following strategy should apply:Division C should offer to transfer chemical CC to Division B at marginal cost plus opportunity cost. This would applyas follows:– 40,000 kilograms of CC at
