Questions:
Reliable Insurance Company's computer department= is developing a transfer price for its services. Capacity is defined as minutes of computer time. Expected capacity for 2001 is 350,000 minutes and full capacity is 450,000 minutes. Costs of the computer area for 2001 are expected to total $280,000.
a. What is the transfer price based on expected capacity?
b. What is the transfer price based on full capacity?
c. Assume the actual cost of operating the computer area in 2001 is $297,500. What is the total variance from budget of that department?
What are some possible causes of that variance?