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1 Convert Coal in Coke. 80% of production used in furnanceCoke Charge to furnace at $6 per ton20% of coke is sold at $ 7.50The total capacity is 80,000 tons.Variable cost per ton = $4.50Fixed cost = $40,000 per yearExpenses $60,000 per ton then thecoke will sold at $6 per tonMarketing Expenses 0.50 perton .Increased in fixed decrease variablereduce by $ 1.50 per ton2 Convert coke in IronOutside purchase.then purchase price will be $per ton. Manager believe that it is not a profitaoptionRequried no1:The transfer price become the cost of blast furnace and thecompany is interested to charge the cost at minium.The total capacity is 80,000 tons and company sold 80%of it which is (80,000 ton x 80%) = 64,000 tons andthe variable cost is $ 4.50 which is less than $5 per unitProfit of Coke:
Present 
Sale to Dept 2 (64,000 x $6) 384,000Sale to Outsider (16,000 x$7.50) 120,000Total Sale 504,000Less:Cost (80,000 x $4.50) (360,000)Less: Fixed cost (40,000)Profit 104,000
Proposed:
Sale to Dept 2 (64,000 x $5) 320,000Sale to Outsider (16,000 x$7.50) 120,000Total Sale 440,000
 
Less:Cost (80,000 x $4.50) (360,000)Less: Fixed cost (40,000)Profit 40,000
Required 2: Decision whether to invest money and sell entire coke to ou
Proposal:Sales (80,000 units x $6)Less: Cost of Sales:1 Variable Cost (80,000 x $3)2 Variable marketing exp (80,000 x 0.50)Total Variable cost3 Fixed cost 40,0004 Fixed Productive and Equip 60,000Profit5 Cost of purchasing by Furnace dept(64,000 tons x $5)Net LossPresent:Sales (16,000 tons x $ 7.50) 120,000(64,000 tons x $6) 384,000Less: Cost of Sales:1 Variable Cost (80,000 x $4.50)2 Fixed costProfit3 Cost of Coke to Furnance dept(64,000 tons x $6)
 
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