# Tutorial Chapter 13 (2).pdf - Problem 13-46 (1) (a)...

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Problem 13-46(1)(a) Transfer Price = Outlay Cost +Opportunity Cost= \$65 +\$15= \$80*Opportunity Cost = Contribution Margin = \$80-\$65 = \$15(b) Transfer price = Standard Variable Cost + (10% x Standard Variable Cost) = \$65 + (10%) (\$65) = \$71.50Remark: Note that the Frame Division manager would refuse to transfer at this price.(2)(a) Transfer Price = Outlay Cost + Opportunity Cost = \$65 + 0 = \$65(b) When there is no excess capacity, the opportunity cost is the forgone contribution margin on anexternal sale when a frame is transferred to the Glass Division. The contribution margin equals \$15 (\$80\$65). When there is excess capacity in the Frame Division, there is no opportunity cost associated witha transfer.(c) Fixed Overhead Per Frame = 125% x \$20 = \$25Transfer Price= Variable Cost + Fixed Overhead Per Frame + [10%x (Variable Cost + Fixed Overhead Per Frame)]= \$65 + \$25 + [(10% x (\$65 + \$25)]= \$99(d) The special order should be accepted because the incremental revenue exceeds the incremental cost,for Clearview Window Company as a whole.(e) The Glass Division manager has an incentive to reject the special order because the Glass Division'sreported net income would be reduced by \$19 for every window in the order.(f) One can raise an ethical issue here to the effect that a division manager should always strive to act inthe best interests of the whole company, even if that action seemingly conflicts with the division’s bestinterests. In complex transfer pricing situations, however,it is not always as clear what the company’soptimal action is as it is in this rather simple scenario.

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Term
Spring
Professor
N/A
Tags
transfer price, Glass Division