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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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