=+Upper management has asked the two departments to negotiate a transfer price for QT-12. The manager of

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=+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.

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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

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