2-a. Assume that there is excess capacity in the Frame Division. Use the general
ID: 2523526 • Letter: 2
Question
2-a. Assume that there is excess capacity in the Frame Division. Use the general rule to compute the transfer price for 2-c. Suppose the predetermined fixed-overhead rate in the Frame Division is 125 percent of direct-labor cost. Calculate 2-d. The Glass Division has been approached by the U.S. Army with a special order for 2,600 windows at $398. window frames. the transfer price if it is based on standard full cost plus a 10 percent markup. Assume the transfer price established in requirement 2-c. above is being used. i.What is the incremental contribution (loss) per window for Clearview Window Company as a whole if this special order is accepted? ??.From the perspective of Clearview Window Company as a whole, should the special order be accepted or rejected? 2-e. The Glass Division has been approached by the U.S. Army with a special order for 2,600 windows at $398. Assume the transfer price established in requirement 2-c. above is being used. i. What is the incremental contribution (loss) per window for the Glass Division if this special order is accepted? ??.Will an autonomous Glass Division manager accept or reject the special order? Complete this question by entering your answers in the tabs below. Req 2A Req 2C Req 2Di Req 2D ii Req 2E i Req 2E ii Assume that there is excess capacity in the Frame Division. Use the general rule to compute the transfer price for window frames.Explanation / Answer
Contribution for Frames of sold to outside customers = 200-170 = $30 per frame
Answer 1.a
Assuming that there is no excess capacity in frame Division, the tranfer price will be the price at which the frames are sold to outside market i.e. $ 200 per frame
Answer 1.b
Standard Variable Cost to manufacture 1 unit of Frame = $170
Transfer Price = 170 + 10% = $187
Answer 2.a
Assuming that there is excess capacity i.e. Frames Division has additional capacity to produce frames over and above external market, the transfer Price will be the variable cost to manufacture the frame in the frames division.
Hence, transfer price will be $ 170
Answer 2.c
Standard Variable Cost = $170
Fixed Cost = 125% of Direct Labour Cost = 125% of 48 = 60
Total Cost = 170+60 = 230
Transfer Price = 10% markup on Total Cost = 230+10% = 253
Answer 2.d
Total Contribution per unit = 83-53 = 30
Contribution for 2600 windows = 2600*30 = 78,000
Since the special order results in additional contribution of $78,000 for company as a whole, the order should be accepted.
Answer 2.e
As per the caclulation in Answer 2d, contribution per window in glass division is negative $53. Total Contribution loss is $137,800 for 2,600 windows.
Hence an autonomous Glass Division manager will reject the special order.
Frame Division Glass Division Selling Price 253 398 Variable Cost: Direct Material 46 76 Frame Transferred 0 253 Direct Labour 48 46 Variable Overhead 76 76 Total Variable Cost 170 451 Contribution per unit 83 -53Related Questions
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