Fabric Plant:

Budgeted overhead: $1,200,000 (50% fixed)

Practical volume (direct labor hours): 120,000 hours

Actual overhead: $1,150,000 (50% fixed)

Actual hours worked:

Weaving and Pattern Coloring and Bolting Total

Fabric FB60 20,000 12,000 32,000

Fabric FB70 28,000 14,000 42,000

Fabric FB80 26,000 18,000 44,000

Total 74,000 44,000 118,000

Departmental data on Fabric FB70 (actual costs and actual outcomes):

Weaving and Pattern Coloring and Bolting

Beginning inventories:

Units* 20,000 400

Costs:

Transferred in $0 $100,000

Materials $80,000 $8,000

Labor $18,000 $6,600

Overhead $22,000 $9,000

Current production:

Units started 80,000 ?

Units transferred out 80,000 3,200

Costs:

Transferred in $0 ?

Materials $320,000 $82,000

Labor $208,000 $99,400

Overhead ? ?

Percentage completion:

Beginning inventory 30% 40%

Ending inventory 40% 50%

*Units are measured in yards for the Weaving and Pattern Department and in bolts for the Coloring and Bolting Department._Note: With the exception of the cardboard bolt rods, materials are added at the beginning of each process. The cost of the rods is relatively insignificant and is included in overhead.

Proposed standard cost sheet for Fabric FB70 (for the Coloring and Bolting Department only):

Transferred in materials (25 yards @ $10) $250.00

Other materials (100 ounces @ $0.20) 20.00

Labor (3.1 hours @ $8) 24.80

Fixed overhead (3.1 hours @ $5) 15.50

Variable overhead (3.1 hours @ $5) 15.50

Standard cost per unit $325.80

Furniture Plant:

Departmental data (budgeted):

Producing

Service Departments Departments

General

Receiving Power Maintenance Factory Cutting Assembly

Overhead $450,000 $600,000 $300,000 $525,000 $750,000 $375,000

Machine hours 60,000 15,000

Receiving orders 13,500 9,000

Square feet 1,000 5,000 4,000 15,000 10,000

Direct labor hours 50,000 200,000

Job A500:

Direct materials:

Fabric FB70 180 bolts @ $350

Lumber (No. 1 common) 20,000 board feet @ $0.12

Other components $26,600

Direct labor:

Cutting Department 400 hours @ $10

Assembly Department 1,600 hours @ $8.75

Machine time:

Cutting Department 350 machine hours

Assembly Department 50 machine hours

Required:

11.Suppose that the fabric plant is set up as a profit center. Bolts of fabric FB70 sell for $400 (or can be bought for $400 from outside suppliers). The fabric plant and the furniture plant both have excess capacity. Assume that job A500 is a special order. The fabric and furniture plants have sufficient excess capacity to satisfy the demands of job A500. What is the minimum transfer price for a bolt of FB70? If the maximum transfer price is $400, by how much do the fabric plants profits increase if the two profit centers negotiate a transfer price that splits the joint benefit?