Clear Windows manufactures windows for the home building industry. The window frames are produced in the Frame Division at a variable production cost of $190 per unit. The frames are then transferred to the Glass Division, where glass and hardware are installed to make the windows. The Glass Division incurs a variable cost of $310 per unit in addition to the transfer price of the Frame Division. The fixed production cost in each division is 30% of the variable production cost.

The Frame Division can also sell frames to custom home builders at a price of $250 per unit, but it will incur a selling expense of $5 per unit. The Glass Division sells its finished windows for $570 per unit.

Required:

(a) Assume that the Frame Division has spare capacity. Calculate the transfer price using the general rule. (1 mark)

(b) Assume that the Frame Division has no spare capacity. Calculate the transfer price using the general rule. (1 mark)

(c) Assume that the Frame Division has spare capacity. Calculate the transfer price if it is based on absorption cost plus a 10% markup. Would the manager of the Glass Division accept this transfer price? (2 marks)