
a.
Identify the unit cost which would be asked from the North Division to pay by the manager of the South Division.
a.

Explanation of Solution
The manager of the South Division is charging the cost on per unit basis including the fixed cost per unit. The differential costs are not taken into account while computing the cost per unit.
The options of charging the cost to North Division are as follows:
Option A: The price can be charged on the basis of the full per unit cost of 2,400 units.
Option B: The use of only differential costs for determining the price.
Option C: The use of differential costs and per unit fixed cost for calculating the price.
Particulars | Costs | Unit cost Options | ||
A | B | C | ||
Direct materials | $ 200 (1) | $ 200 | $ 200 | $ 200 |
Direct Labor | $ 96 (2) | $ 96 | $ 96 | $ 96 |
Other variable costs | $ 64 (3) | $ 64 | $ 64 | $ 64 |
Fixed costs | $ 2,016,000 | $ 840 (4) | $ - | $ 672 (5) |
Per cost unit | $ 1,200 | $ 360 | $ 1,032 | |
Cost plus 15% | $ 1,380 | $ 414 | $ 1,187 | |
Total price (600 units) | $ 828,000 | $ 248,400 | $ 712,080 |
The unit cost which would be asked from the North Division to pay by the manager of the South Division is as stated in Option A. The cost does not include the differential cost.
Thus, the unit cost which would be asked from the North Division to pay by the manager of the South Division is $1,200 per unit.
Working note 1:
Compute the Direct materials cost per unit:
Working note 2:
Compute the Direct labor cost per unit:
Working note 3:
Compute the other variable cost per unit:
Working note 4:
Compute the fixed cost per unit in option A:
Working note 5:
Compute the fixed cost per unit in option C:
b.
Identify the unit cost which would be argued from the North Division to be paid by the manager of the North Division.
b.

Explanation of Solution
The unit cost which would be argued from the North Division to be paid by the manager of the North Division is as stated in Option C. The cost includes the differential cost as well as unit fixed costs.
Thus, the unit cost which would be argued from the North Division to be paid by the manager of the North Division is $1,032 per unit.
c.
Explain the unit cost which should be recommended for a sale of units from the South Division to the North Division.
c.

Explanation of Solution
The unit cost which should be recommended for a sale of units from the South Division to the North Division is as stated in Option B. The cost includes the differential cost.
Thus, the unit cost which should be recommended for a sale of units from the South Division to the North Division is $300 per unit.
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Chapter 1 Solutions
GEN COMBO FUNDAMENTALS OF COST ACCOUNTING; CONNECT 1S ACCESS CARD
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