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Unit 5 – Individual Project (125 points)
Due: Sun, Apr 21 |Printer Friendly Version
Description
Assignment Details:
Sky Armour Industries manufactures high-grade aluminum luggage made from recycled metal. The company operates two divisions: metal recycling and luggage fabrication. Each division operates as a decentralized entity. The metal recycling division is free to sell sheet aluminum to outside buyers, and the luggage fabrication division is free to purchase recycled sheet aluminum from other sources. Currently, however, the recycling division sells all of its output to the fabrication division, and the fabrication division does not purchase materials from any outside suppliers.
Aluminum is transferred from the recycling division to the fabrication division at 110% of full cost. The recycling division purchases recyclable aluminum for $0.50 per pound. The division’s other variable costs equal $2.80 per pound, and fixed costs at a monthly production level of 50,000 pounds are $1.50 per pound. During the most recent month, 50,000 pounds of aluminum were transferred between the two divisions. The recycling division’s capacity is 70,000 pounds.
Due to increased demand, the fabrication division expects to use 60,000 pounds of aluminum next month. Metalife Corporation has offered to sell 10,000 pounds of recycled aluminum next month to the fabrication division for $5.00 per pound.
Calculate the transfer price during the most recent month per pound of recycled aluminum.
Assuming that each division is considered a profit center, would the fabrication manager choose to purchase 10,000 pounds next month from Metalife?
Is the purchase in the best interest of Sky Armour Industries? Show your calculations.
What is the cause of this goal incongruence?
The fabrication division manager suggests that $5.00 is now the market price for recycled sheet aluminum and that this should be the new transfer price. Sky Armour Industries’ corporate management tends to agree. The metal recycling manager is suspicious. Metalife’s prices have always been considerably higher than $5.00 per pound.
Why the sudden price cut? After further investigation by the recycling division manager, it is revealed that the $5.00 per pound price was a one-time-only offer made to the fabrication division due to excess inventory at Metalife. Future orders would be priced at $5.50 per pound.
Elaborate on the validity of the $5.00 per pound market price and the ethics of the fabrication manager.
Would changing the transfer price to $5.00 matter to Sky Armour Industries?
Please submit your assignment.
For assistance with your assignment, please use your textbook, all course resources, and any external research and resources you have gathered.
Individual Project Rubric
The Individual Project (IP) Grading Rubric is a scoring tool that represents the performance expectations for the IP. This Individual Project Grading Rubric is divided into components that provide a clear description of what should be included within each component of the IP. It’s the roadmap that can help you in the development of your IP.
Expectation Points Possible Points Earned Comments
Assignment-Specific: Calculates the transfer price during the most recent month per pound of recycled aluminum
23
Assignment-Specific: Calculates purchase of 10,000 pounds of aluminum next month from Metalife
23
Assignment-Specific: Analyzes the cause of the goal incongruence
23
Assignment-Specific: Elaborates on the validity of the $5.00 per pound market price and the ethics of the fabrication manager
23
Assignment-Specific: Analyzes why (or why not) the change in transfer price matters to Sky Armour
23
Professional Language: Assignment contains accurate grammar, spelling, and punctuation with few or no errors
10
Total Points
125
Total Points Earned
