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RaceFest Inc. has two operating divisions. The Ski Division makes water and snow skis, and the Binding Division makes rubber boots for water skis. The
RaceFest Inc. has two operating divisions. The Ski Division makes water and snow skis, and the Binding Division makes rubber boots for water skis. The Binding Division estimates that 800,000 pairs of boots will be produced in 2010; of those, 600,000 pairs will be sold to the Ski Division and 200,000 pairs will be sold externally. Managers of the two divisions are in the process of determining a transfer price for a pair of boots. The following information for the Binding Division is available: a $27 Direct material Direct labor 12 7 4 $50 $10 Variable overhead Variable S&A (both for external and internal sales) Total variable cost Fixed overhead (rate based on estimated annual production) Fixed selling and administrative (rate based on estimated annual sales) Total fixed cost Total cost per pair of boots Markup on total variable cost (40%) List price to external customers 5 15 $65 20 $85 e. Prepare the journal entries for tlic Binding (selling) and Ski (buying) segments if the transfer is made at the external selling price for the selling division and the full production cost for the buying division
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