The following information applies to the questions displayed below.] Weathermast

Question

The following information applies to the questions displayed below.] Weathermaster Window Company 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, doublepaned operable window. The Frame Division can also sell frames directly to custom home builders, who install the glass and hardware. The sales price for a frame is $175. The Glass Division sells its finished windows for $510. The markets for both frames and finished windows exhibit perfect competition. The standard cost of the window is detailed as follows: Frame Glass Division Dvision $ 43 S 67 Direct material Direct labor Variable overhead 43 $ 67* 43 67 40 67 Total $ 150 $ 177 Not including the transfer price for the frame. value: 5.00 points Required 1-a. Assume that there is no excess capacity in the Frame Division. Use the general rule to compute the transfer price for window frames.

Explanation / Answer

If there is no excess capacity in the Frame dividion the transfer price would be $175 If it has 10% markup on variable cost The transfer price would be 150+150*10% 150+15 $165 3 If there is excess capacity then the transfer price would be the variable cost $150 2 Total variable Cost 150 Fixed Cost 40*125% 50 Total 200 Add: Mark up 20 Transfer price $220

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