Memory Production manufactures photo frames. The photo frames are assembled in the Frame Division. The half-finished frames are then transferred to the Finishing Division, where the glass and other components are installed. The standard cost for the company’s A4 side frame is detailed as follows: Frame Division Finishing Division Direct material $4.50 $9.00 (exclude transfer) Direct labour 6.00 4.50 Variable overhead 9.00 9.00 Total 19.50 22.50 The frame division can also sell half-finished frames to photo framing companies which install the glass and other components. The sales price of a half-finished frame is $24.00. The Finishing Division sells finished frames for $57.00. Required: a) Assume that there is no spare capacity in the Frame Division, use the general transfer pricing rule to calculate the transfer price for half-finished frames. b) Assume that there is spare capacity in the Frame Division. i. Use the general transfer pricing rule to calculate the transfer price for halffinished frames. ii. Assume that the predetermined fixed overhead rate in the division is 135 per cent of direct labour cost, calculate the transfer price for half-finished frames based on standard absorption cost plus 10 per cent mark-up
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Memory Production manufactures photo frames. The photo frames are assembled in the Frame Division. The half-finished frames are then transferred to the Finishing Division, where the glass and other components are installed. The
Frame Division Finishing Division
Direct material $4.50 $9.00 (exclude transfer)
Direct labour 6.00 4.50
Variable
Total 19.50 22.50
The frame division can also sell half-finished frames to photo framing companies which install the glass and other components. The sales price of a half-finished frame is $24.00. The Finishing Division sells finished frames for $57.00.
Required: a) Assume that there is no spare capacity in the Frame Division, use the general transfer
pricing rule to calculate the transfer price for half-finished frames.
b) Assume that there is spare capacity in the Frame Division. i. Use the general transfer pricing rule to calculate the transfer price for halffinished frames.
ii. Assume that the predetermined fixed overhead rate in the division is 135 per cent of direct labour cost, calculate the transfer price for half-finished frames based on standard absorption cost plus 10 per cent mark-up
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