Crystal Limited manufactures photo frames. The photo frames are assembled in the Frame Division. The half-finished...

 

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Crystal Limited manufactures photo frames. The photo frames are assembled in the Frame Division. The half-finished frames are then transferred to the Finishing Division, where the glass and other components are installed. The standard cost for the company's A4 side frame is detailed as follows: Frame Division Finishing Division $4.50 $9.00 (exclude transfer) 6.00 4.50 9.00 9.00 Direct material Direct labour Variable overhead Total The frame division can also sell half-finished frames to photo framing companies which install the glass and other components. The sales price of a half-finished frame is $24.00. The Finishing Division sells finished frames for $57.00. 19.50 22.50 Required: (a) Assume that there is no spare capacity in the Frame Division, use the general transfer pricing rule to calculate the transfer price for half- finished frames. (2 marks) (b) Assume that there is spare capacity in the Frame Division. i. Use the general transfer pricing rule to calculate the transfer price for half-finished frames. (2 marks) ii. Assume that the predetermined fixed overhead rate in the division is 135 per cent of direct labour cost, calculate the transfer price for half-finished frames based on standard absorption cost plus 10 per cent markup. (2 marks) (c) Discuss the cost and benefits of decentralisation. (4 marks) Crystal Limited manufactures photo frames. The photo frames are assembled in the Frame Division. The half-finished frames are then transferred to the Finishing Division, where the glass and other components are installed. The standard cost for the company's A4 side frame is detailed as follows: Frame Division Finishing Division $4.50 $9.00 (exclude transfer) 6.00 4.50 9.00 9.00 Direct material Direct labour Variable overhead Total The frame division can also sell half-finished frames to photo framing companies which install the glass and other components. The sales price of a half-finished frame is $24.00. The Finishing Division sells finished frames for $57.00. 19.50 22.50 Required: (a) Assume that there is no spare capacity in the Frame Division, use the general transfer pricing rule to calculate the transfer price for half- finished frames. (2 marks) (b) Assume that there is spare capacity in the Frame Division. i. Use the general transfer pricing rule to calculate the transfer price for half-finished frames. (2 marks) ii. Assume that the predetermined fixed overhead rate in the division is 135 per cent of direct labour cost, calculate the transfer price for half-finished frames based on standard absorption cost plus 10 per cent markup. (2 marks) (c) Discuss the cost and benefits of decentralisation. (4 marks)

Answer rating: 100% (QA)

a Assuming no spare capacity in the Frame Division the general transfer pricing rule suggests setting the transfer price for halffinished frames at th... View the full answer