Bonus calculations Requirements 1. Give an example of a goal-congruence problem that will arise if Cran Health continues to use a transfer price of 225% of full cost and Borges's decentralization policy is adopted. 2. Borges feels that a dual transfer-pricing policy will improve goal congruence. He suggests that transfers out of the harvesting division be made at 225% of full cost and transfers into the processing division be made at market price. Compute the operating income of each division under this dual transfer-pricing method when 450,000 pounds of cranberries are harvested during June 2020 and processed into juice. 3. Why is the sum of the division operating incomes computed in requirement 2 different from Cran Health's operating income from harvesting and processing 450,000 pounds of cranberries? 4. Determine two problems that may arise if Cran Health implements the dual transfer prices described in requirement 2 . More info Assume that Pat Borges, CEO of Cran Health, had mandated a transfer price equal to 225% of full cost. Now he decides to decentralize some management decisions and sends around a memo that states: "Effective immediately, each division of Cran Health is free to make its own decisions regarding the purchase of direct materials and the sale of finished products." PLEASE USE THIS TO HELP ANSWER QUESTIONS BONUSES ARE EQUAL TO 2% of division operating income Requirement 1: The Harvesting Division/ an external supplier Increase/lower Requirement 3: Requirement 1. Give an example of a goal-congruence problem that will arise if Cran Health continues to use a transfer price of 225% of full cost and Borges's decentralization policy is adopted. If a transfer price of 225% of full costs is mandated and Borges's decentralization policy is adopted the Processing Division manager will prefer to buy cranberries from This will Cran Health's overall operating income creating a goal-congruence problem. income of each division under the dual transfer-pricing method when 450,000 pounds of cranberries are harvested during June 2020 and processed into juice. Begin by computing the harvesting division's operating income, then compute the processing division. Requirement 3. Why is the sum of the division operating incomes computed in requirement 2 different from Cran Health's operating income from harvesting and processing 450,000 pounds of cranberries? The company has already calculated their operating income from harvesting and processing 450,000 pounds of cranberries. (Click to view the operating income.) A dual transfer-pricing method entails using for transfers into the buying division and transfers out of the supplying division. As a result, the sum of division operating incomes equal the total company operating income. lequirement 4. Determine two problems that may arise if Cran Health implements the dual transfer prices described in requirement 2. It may reduce the incentives of the supplying division to control costs since the costs are transferred out at a higher amount than the actual costs incurred. It does not insulate the harvesting division manager from the frictions and the discipline of the marketplace because costs, not market prices, affect the revenues of the supplying division. A dual transfer-pricing system does not provide clear signals to the individual divisions about the level of decentralization top management seeks. Bonus calculations Requirements 1. Give an example of a goal-congruence problem that will arise if Cran Health continues to use a transfer price of 225% of full cost and Borges's decentralization policy is adopted. 2. Borges feels that a dual transfer-pricing policy will improve goal congruence. He suggests that transfers out of the harvesting division be made at 225% of full cost and transfers into the processing division be made at market price. Compute the operating income of each division under this dual transfer-pricing method when 450,000 pounds of cranberries are harvested during June 2020 and processed into juice. 3. Why is the sum of the division operating incomes computed in requirement 2 different from Cran Health's operating income from harvesting and processing 450,000 pounds of cranberries? 4. Determine two problems that may arise if Cran Health implements the dual transfer prices described in requirement 2 . More info Assume that Pat Borges, CEO of Cran Health, had mandated a transfer price equal to 225% of full cost. Now he decides to decentralize some management decisions and sends around a memo that states: "Effective immediately, each division of Cran Health is free to make its own decisions regarding the purchase of direct materials and the sale of finished products." PLEASE USE THIS TO HELP ANSWER QUESTIONS BONUSES ARE EQUAL TO 2% of division operating income Requirement 1: The Harvesting Division/ an external supplier Increase/lower Requirement 3: Requirement 1. Give an example of a goal-congruence problem that will arise if Cran Health continues to use a transfer price of 225% of full cost and Borges's decentralization policy is adopted. If a transfer price of 225% of full costs is mandated and Borges's decentralization policy is adopted the Processing Division manager will prefer to buy cranberries from This will Cran Health's overall operating income creating a goal-congruence problem. income of each division under the dual transfer-pricing method when 450,000 pounds of cranberries are harvested during June 2020 and processed into juice. Begin by computing the harvesting division's operating income, then compute the processing division. Requirement 3. Why is the sum of the division operating incomes computed in requirement 2 different from Cran Health's operating income from harvesting and processing 450,000 pounds of cranberries? The company has already calculated their operating income from harvesting and processing 450,000 pounds of cranberries. (Click to view the operating income.) A dual transfer-pricing method entails using for transfers into the buying division and transfers out of the supplying division. As a result, the sum of division operating incomes equal the total company operating income. lequirement 4. Determine two problems that may arise if Cran Health implements the dual transfer prices described in requirement 2. It may reduce the incentives of the supplying division to control costs since the costs are transferred out at a higher amount than the actual costs incurred. It does not insulate the harvesting division manager from the frictions and the discipline of the marketplace because costs, not market prices, affect the revenues of the supplying division. A dual transfer-pricing system does not provide clear signals to the individual divisions about the level of decentralization top management seeks