(Transfer pricing for services) The data processing operation of Bank of Atlanta is developing a transfer price for its services. Capacity is defined as minutes of computer time. Expected capacity for next year (1998) is 350,000 minutes and full capacity is 450,000 minutes. Costs of the computer area for 1998 are ex¬ pected to total $280,000.

a. What is the transfer price based on expected capacity?

b. What is the transfer price based on full capacity?

c. Assume the actual cost of operating the computer area in 1998 is $297,500. What is the total variance from budget of that department? What are some possible causes of that variance?