Memory Production manufactures photo frames. The photo frames are assembled in the Frame Division. The half-finished frames are then transferred to the Finishing Division, where the glass and other components are installed. The standard cost for the company's A4 side frame is detailed as follows:

Frame Division Finishing Division

Direct material $4.50 $9.00 (exclude transfer)

Direct labour 6.00 4.50

Variable overhead 9.00 9.00

Total 19.50 22.50

The frame division can also sell half-finished frames to photo framing companies which install the glass and other components. The sales price of a half-finished frame is $24.00. The Finishing Division sells finished frames for $57.00.

Required: a) Assume that there is no spare capacity in the Frame Division, use the general transfer pricing rule to calculate the transfer price for half-finished frames. (2 marks)

b) Assume that there is spare capacity in the Frame Division. i. Use the general transfer pricing rule to calculate the transfer price for half-finished frames. (1 mark) ii. Assume that the predetermined fixed overhead rate in the division is 135 per cent of direct labour cost, calculate the transfer price for half-finished frames based on standard absorption cost plus 10 per cent mark-up. (2 marks)

c) Provide two examples of non-financial performance measures that could be used to measure the performance of a hotel. (2 marks)

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