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Caffeine Connections sells a variety of exotic teas and coffees through a national network.
Caffeine Connections sells a variety of exotic teas and coffees through a national network. The company operates its own roasting division, which supplies roasted coffee beans to its own wholesale division as well as to other external customers. Even though the roasting division can roast 500,000 pounds of beans each month, current market demand is only 425,000 pounds, so that is the current level of production. The wholesale division has designed a new promotional product for which it needs 50,000 pounds of roasted coffee beans. It can be purchased from an external supplier for $7 per pound. The roasting division can supply the beans to the wholesale division at a price of $8 per pound, which is the retail price to external customers. Variable costs for the roasting division amount to $4 per pound and fixed costs amount to $1.75 per pound. Given the above information, should the roasting division sell the coffee beans to the wholesale division? if your answer is yes, what will be the expected transfer price? BE SURE TO INCLUDE A MAXIMUM AND MINIMUM PRICE. If your answer is no, explain why you would veto the transaction.
Explain whether your answer to part A would change if the roasting division were operating at 100% capacity.