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Managerial Accounting - Jefferson Company

Jefferson Company has two divisions: Jefferson Bottles and Jefferson Juice. Jefferson Bottles makes glass containers, which it sells to Jefferson Juice and other companies. It has a capacity of 10 million bottles a year. Jefferson Juice currently has a capacity of 3 million bottles per year. Jefferson Bottles has a fixed cost of $100,000 per year and a variable cost of $0.10/bottle. Jefferson Bottles can currently sell all of its output at $0.15/bottle.

a. What should Jefferson Bottles charge Jefferson Juice for bottles so that both divisions make appropriate decentralized planning decisions?

b. If Jefferson Bottles can sell only 5 million bottles to outside buyers,
What should Jefferson Bottles charge Jefferson Juice for bottles so that both divisions make appropriate decentralized planning decisions?

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a. What should Jefferson Bottles charge Jefferson Juice for bottles so that both divisions make appropriate decentralized planning decisions?

First, we need to find the fixed cost per bottle as follows: -

$100,000/10,000,000 bottles = $0.01 ...

Solution Summary

This solution is comprised of a detailed explanation to answer what should Jefferson Bottles charge Jefferson Juice for bottles so that both divisions make appropriate decentralized planning decisions, and if Jefferson Bottles can sell only 5 million bottles to outside buyers, what should Jefferson Bottles charge Jefferson Juice for bottles so that both divisions make appropriate decentralized planning decisions.

$2.19