Company XX has multiple divisions for production of windows. The frames are produced in the frame division. When finished, they are sent to the glass division where the glass and hardware are installed. Company XX's best-selling product is a 3x4 ft., double paned operable window. The frame division also can sell frames directly to custom home builders who install the glass and hardware themselves.
The sales price for a frame alone is 80$/unit.
The glass division sells its finished product for 190$/unit.
The market for both frames and finished products exhibit perfect competition.
Variable costs are as follows.....
(Driver : $Frame / $Glass )
Direct Material: $15 / $ 30**
Direct Labor: $20 / $15
Variable Overhead: $30 / $30
TOTAL : $65 / $75
Required:
1. Assuming there is no excess capacity in the Frame division:
a. use the genera rule to compute the transfer price for the frames
b. calcculate the transfer price if it is based on standard variable cost with a 10% markup.
2. Assuming that there is excess capacity in the frame division:
a. Use general rule to compute transfer price for frames