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Classic Windows manufactures window for home building industry. The window frames are produced in the Frame Division. The frames are then transferred to the Glass
Classic Windows manufactures window for 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 1 x 1.2, metre double- paned window. The standard cost of the window is detailed as follows: Frame Division Glass Division Direct Material $ 30 $80 Direct Labour 40 30 Variable Overhead 60 60 Total Standard Cost $130 $150 * Not including the transfer price for the frame 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 $160. The Glass Division sells its finished windows for $380. Required: Assume that there is no spare capacity in the Frame Division a) Use the general rule to calculate the transfer price for window frames (3 marks) [Answer and show workings here) b) Calculate the transfer price if it is based on standard variable cost with a 10% mark-up (5 marks) [Answer and show workings here) 2. Assume that there is spare capacity in the Frame Division. a) Use the general rule to calculate the transfer price for window frames. (3 marks) [Answer and show workings here) b) Explain why your answers to requirements 1(a) and 2(a) differ.(4 marks)
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