Greystone Corporation 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, double-paned operable-windows. The standard cost of the window is detailed below: Frame Division Glass Division Direct Material P15 P30 Direct Labor 20 15 Variable overhead 30 30 Total 65 75 *Not including the transfer price for the frame. The Frame Division can also sell frames directly to custom home builders, who install the glass and hardware at P80. The markets for both frames and finished windows exhibit perfect competition. REQUIRED: Assume that there is no excess capacity in the Frame Division. Use the general rule to compute the transfer price for window frames. Assume that there is excess capacity in the Frame Division. Use the general rule to compute the transfer price for window frames. 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.
Greystone Corporation 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, double-paned operable-windows. The
Frame Division Glass Division
Direct Material P15 P30
Direct Labor 20 15
Variable overhead 30 30
Total 65 75
*Not including the transfer price for the frame.
The Frame Division can also sell frames directly to custom home builders, who install the glass and hardware at P80. The markets for both frames and finished windows exhibit
REQUIRED:
- Assume that there is no excess capacity in the Frame Division. Use the general rule to compute the transfer price for window frames.
- Assume that there is excess capacity in the Frame Division. Use the general rule to compute the transfer price for window frames.
- 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.
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