Reference no: EM132839602

Question - Robinson Farms has two divisions, the Orchard Division, and the Kitchen Division. The Orchard Division grows apples for a variable cost of $6 per bushel. Its 2005 sales were 150,000 bushels to outsiders at $10 per bushel and 40,000 bushels to the Kitchen Division at 140% of variable costs. Under a dual transfer pricing system, The Kitchen Division pays only the variable cost per bushel. The fixed manufacturing costs of the Orchard Division were $250,000 per year.

The Kitchen Division bakes pies with the apples, and sells the pies to outside customers for $2.00 per pie. It takes one bushel of apples to make a dozen pies. The Kitchen Division has variable manufacturing costs of $0.40 per pie in addition to the costs from the Orchard Division. The annual fixed manufacturing costs of the Kitchen Division were $170,000. There were no beginning inventories or ending inventories during the year.

Required -

A) What is the operating income of the Orchard Division?

B) What is the operating income of the Kitchen Division?

C) What is the operating income of Robinson Farms as a whole?

D) Explain why the company operating income is less than the sum of the two divisions' total income.

E) Now assume that there is no beginning or ending inventory of apples, but that out of the 480,000 pies manufactured, Sunnybrook Kitchen has 60,000 pies unsold at the end of 2005. Ignoring the issue of spoilage (the pies can be frozen), how would this ending inventory be valued for financial reporting purposes (i.e., for G.A.A.P.)? That is, what is the dollar value of this inventory on Robinson's consolidated financial statements?