Question 3

What are the salient properties that a transfer pricing system should fulfill? (4 marks)

Restopedic Ltd., estimates the following number of mattress sales for the first four months of 20X5: Month Sales January 5,000 February 7,000 March 6,500 April 8,000 Finished goods inventory at the end of December is 1,500 units. Target ending finished goods inventory is 30% of the next month's sales. Required: 1. How many mattress needs to be produced in January 20X5? (3 marks) 2. How many mattress needs to be produced in the first quarter (January, February & March) (5 marks)

3. Having done this budget what other budget concerning the production of these mattresses would need to be done (2 marks)

Headrest Pillow Ltd manufactures pillows. The 2015 operating budget is based on production of 20,000 pillows with 0.5 machine-hour allowed per pillow. Variable manufacturing overhead is anticipated to be $220,000. Actual production for 2015 was 18,000 pillows using 9,500 machine-hours. Actual variable costs were $20 per machine-hour. Calculate the variable overhead spend and efficiency variances (6 marks)