Weathermaster Window Company manufactures windows for the home-building industry

Question

Weathermaster Window Company manufactures windows for the home-building industry. The window frames are produced in the Frame Division. The frames are then transferred to the Glass Division, where the glass and hardware are installed. The company’s best-selling product is a three-by-four-foot, doublepaned operable window.

The Frame Division can also sell frames directly to custom home builders, who install the glass and hardware. The sales price for a frame is $180. The Glass Division sells its finished windows for $490. The markets for both frames and finished windows exhibit perfect competition.

*Not including the transfer price for the frame.

1.) Calculate the transfer price if it is based on standard variable cost with a 10 percent markup.

Suppose the predetermined fixed-overhead rate in the Frame Division is 125 percent of direct-labor cost. Calculate the transfer price if it is based on standard full cost plus a 10 percent markup.

The Glass Division has been approached by the U.S. Army with a special order for 2,100 windows at $319. Assume the transfer price established in requirement 2-c. above is being used.

What is the incremental contribution (loss) per window for Weathermaster Window Company as a whole if this special order is accepted?

What is the incremental contribution (loss) per window for the Glass Division if this special order is accepted?

Weathermaster Window Company manufactures windows for the home-building industry. The window frames are produced in the Frame Division. The frames are then transferred to the Glass Division, where the glass and hardware are installed. The company’s best-selling product is a three-by-four-foot, doublepaned operable window.

Explanation / Answer

1) Frame division Direct material 41 Direct Labor 40 Variable overhead 49 130 Markup10% 13 Total Tranfer price to glass division 143 2-c) Frame division Glass division Transfer price cost from frame 198 Direct material 41 49 Direct Labor 40 41 Variable overhead 49 49 predetermined fixed-overhead rate 50 - Total cost 180 337 Markup10% on total cost 18 Total Tranfer price to glass division 198 2-d) i) Selling price 319 Total cost 337 Less: markup on total cost -18 net cost to the company 319 Net contribution to the company 0 There is no profit no loss it’s a break even at 319 2-e) i) Total cost to glass division 337 Selling price 319 Net contribution to the Glass division -18

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