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Clearview 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 also can sell frames directly to custom home builders, who install the glass and hardware. The sales price for a frame is $200. The Glass Division sells its finished windows for $540. The markets for both frames and finished windows exhibit perfect competition.

The standard variable cost of the window is detailed as follows:

*Not including the transfer price for the frame.

1-a. Use the general rule to compute the transfer price for window frames.

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

Frame Division Glass Division Direct material $ 46 $ 76 * Direct labor 48 46 Variable overhead 76 76 Total $ 170 $ 198

Explanation / Answer

1-a Since, there is perfect Competition , Frames Department can sell all its produce ar $200/unit in Outside Market

Hence, Transfer price should be $200

1-b Starndard Variable Cost = 170 , Markup = 10% of 170 = 17

Transfer Price = 170+17 = 187

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