Question
[The following information applies to the questions displayed below.] Clearview Window Company manufactures windows for the home-building industry. The window frames are produced in the
[The following information applies to the questions displayed below.]
Clearview Window Company 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 companys best-selling product is a three-by-four-foot, doublepaned operable window. The Frame Division also can sell frames directly to custom home builders, who install the glass and hardware. The sales price for a frame is $175. The Glass Division sells its finished windows for $410. The markets for both frames and finished windows exhibit perfect competition. The standard variable cost of the window is detailed as follows:
Frame Division | Glass Division | ||||||||||
Direct material | $ | 33 | $ | 65 | * | ||||||
Direct labor | 32 | 33 | |||||||||
Variable overhead | 65 | 65 | |||||||||
Total | $ | 130 | $ | 163 | |||||||
*Not including the transfer price for the frame.
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2-a. Assume that there is excess capacity in the Frame Division. Use the general rule to compute the transfer price for window frames.
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2-c. Suppose the predetermined fixed-overhead rate in the Frame Division is 125 percent of direct-labor cost. Calculate the transfer price if it is based on standard full cost plus a 10 percent markup.
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2-d. The Glass Division has been approached by the U.S. Army with a special order for 1,300 windows at $338. Assume the transfer price established in requirement 2-c. above is being used.
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i.What is the incremental contribution (loss) per window for Clearview Window Company as a whole if this special order is accepted?
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ii.From the perspective of Clearview Window Company as a whole, should the special order be accepted or rejected?
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2-e. The Glass Division has been approached by the U.S. Army with a special order for 1,300 windows at $338. Assume the transfer price established in requirement 2-c. above is being used.
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i. What is the incremental contribution (loss) per window for the Glass Division if this special order is accepted?
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ii.Will an autonomous Glass Division manager accept or reject the special order?
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