=+Upper management has asked the two departments to negotiate a transfer price for QT-12. The manager of
Question:
=+Upper management has asked the two departments to negotiate a transfer price for QT-12. The manager of Department A, John Barnes, is worried that Department B will insist on using variable cost as the transfer price because Department A has excess capacity. John asks Shaun Horton, his management accountant, to show more costs as variable costs and fewer costs as fixed costs.
John says: ‘There are grey areas when distinguishing between fixed and variable costs. I think the variable cost of making QT-12 is $14 per unit.’
Required 1 If John Barnes is correct, calculate the benefit to Department A from showing a variable cost of $14 per unit rather than $12 per unit.
Step by Step Answer:
Cost Accounting A Managerial Emphasis
ISBN: 9781442563377
2nd Edition
Authors: Monte Wynder, Madhav V. Rajan, Srikant M. Datar, Charles T. Horngren, William Maguire, Rebecca Tan