(Transfer pricing for sen ices) Walsdorf Company’s information technology department is developing a service department transfer price based on min¬ utes of computer time. For 2006, its expected capacity was 350,000 minutes, and theoretical capacity was 500,000 minutes. Costs of the IT department for 2006 were expected to total $332,500.

a. What is the transfer price based on expected capacity?

b. What is the transfer price based on full capacity?

c. Actual operating costs in the IT department for 2006 were $350,000, and actual capacity usage was 365,000 minutes. What were the total vari¬ ances from budget if the IT department used a transfer price based on expected capacity? On full capacity? What are some possible causes of that variance? LO.1