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Ch 12 problem 12-70-1

Ch 12 problem 12-70-1 - 12-70(40 MINUTES 1 a Transfer price...

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12-70 (40 MINUTES) 1. a. Transfer price = outlay cost + opportunity cost = $130 + $30 = $160 b. Transfer price = standard variable cost + (10%)(standard variable cost) = $130 + (10%) ($130) = $143 Note that the Frame Division manager would refuse to transfer at this price. 2. a. Transfer price = outlay cost + opportunity cost = $130 + 0 = $130 b. When there is no excess capacity, the opportunity cost is the forgone contribution margin on an external sale when a frame is transferred to the Glass Division. The contribution margin equals $30 ($160 – $130). When there is excess capacity in the Frame Division, there is no opportunity cost associated with a transfer. c. Fixed overhead per frame (125%)($40) = $50 Transfer price = variable cost + fixed overhead per frame + (10%)(variable cost + fixed overhead per frame) = $130 + $50 + [(10%)($130 + $50)] = $198 d. Incremental revenue per window .................................. $310 Incremental cost per window, for Weathermaster Window Company: Direct material (Frame Division) ............................... $30 Direct labour (Frame Division) .................................. 40 Variable overhead (Frame Division) .......................... 60 Direct material (Glass Division) ................................ 60 Direct labour (Glass Division) ................................... 30
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