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Questions Answers I need an explanation about why the answer for (d) do not need to add Fixed Overhead/ Transfer price ($297) but (e) need
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I need an explanation about why the answer for (d) do not need to add Fixed Overhead/ Transfer price ($297) but (e) need to add?
Problem 12.39 Clear Windows manufactures windows for the 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 meter double panned window. The standard cost of the window is detailed as follows: Frame Division Direct materials Direct labor Variable overhead Total standard cost $45 60 90 $195 Glass Division $90* 45 90 $225 *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 $240. The Glass Division sells its finished windows for $570. a. 1. Assume that there is spare capacity in the Frame Division. Use the general rule to calculate the transfer price for window frames. b. Explain why your answers to requirements 1(a) and 2(a) differ. C. Suppose that the predetermined fixed overheard rate in the Frame Division is 125 percent of direct labor cost. Calculate the transfer price if it is based on standard absorption cost plus 10 percent d. Assume the transfer price established in requirement 2(c) is used. The Glass Division has been approached by the management of commercial construction company with a special order for 1000 windows at $465 each. From the perspective of the Clear Windows as a whole, should the special order be accepted or rejected? Explain your answer. e. Assume the same facts as in requirement 2(d). Would autonomous Glass Division manager accept or reject the special order? Why? a an (d) Incremental revenue per window $465 Incremental cost per window Direct material (Frame Division) $45 Direct labour (Frame Division) 60 Variable overhead (Frame Division) 90 Direct material (Glass Division) 90 O Direct labour (Glass Division) 45 Variable overhead (Glass Division) 90 Total variable (incremental) cost 420 Incremental contribution per window in special order for Clear Windows Company $45 From the perspective of the company as a whole, the special order should be accepted because the incremental revenue exceeds the incremental cost. (e) Incremental revenue per window $465 Incremental cost per window, for the Glass Division: Transfer price for frame (from requirement 2(c)] $297 Direct material (Glass Division) 90 Direct labour (Glass Division) 45 Variable overhead (Glass Division) 90 Total incremental cost 522 Incremental loss per window in special order for Glass Division $ (57) The Glass Division manager has an incentive to reject the special order because the Glass Division's reported net profit would be reduced by $57 for every window in the order. 3 The price to transfer 200 units from the Frame Division to the Glass Division is $285 per unitStep by Step Solution
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