Required: Assume that the frame division has limited capacity and can only supply half of the required 200 units of the double-paned window to the glass division. To supply all of the 200 units to the glass division, the frame division would have to forgo production and sales of 150 units of another product to external customers. These external sales typically yield a contribution of $120 per unit. Use the general rule to calculate the transfer price, and explain the likely decision that the two divisions will make about the transfer.

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 1.2m, double- panned window. The standard cost of the window is detailed as follows: Glass Division $90 Frame Division Direct material $45 Direct labour 60 Variable overhead 90 Total standard cost $195 *Not including the transfer price for the frame 45 90 $225 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