Crosswell Enterprises has two divisions: the Motor Division and the Device Division. The Motor Division manufactures...

   

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Crosswell Enterprises has two divisions: the Motor Division and the Device Division. The Motor Division manufactures electric motors, which are transferred to the Device Division to make medical devices. The medical devices are sold to the external market for $1050 per unit. While the Motor Division can sell their motors directly to the external market for $380 per unit, it would also incur an additional selling cost of $8 per unit. The standard cost of a medical device is as follows: Motor Division Device Division Direct material $ 80 $250 Direct labour $50 $160 Variable overhead $ 70 $190 Fixed overhead $ 110 $ 230 The direct material cost of the Device Division in the table above does not include the transfer price for the motor. Required: (a) Assume that the Motor Division has spare capacity. Calculate the transfer price using the general rule. Show workings. (1 mark) (b) Assume that the Motor Division has no spare capacity. Calculate the transfer price using the general rule. Show workings. (1 mark) (c) Assume that the Motor Division has no spare capacity. Calculate the transfer price if it is based on standard absorption cost plus a 20% markup. Is it likely that the internal transfer will take place? Explain your answer from the perspective of each division. (3 marks) (d) Assume that both divisions have spare capacity. The Device Division has been approached by the management of a medical equipment company with a special order for 1000 devices at $870 each. (i) From the perspective of Crosswell Enterprises as a whole, should the special order be accepted or rejected? Explain why. (2 marks) (ii) Calculate the transfer price if it is based on absorption cost plus 10%. Would an autonomous Device Division manager accept or reject the special order? (2 marks) (iii) Assume that Crosswell Enterprises decides to accept the special order. Calculate the minimum and maximum transfer price acceptable by both divisional managers. (1 mark) Crosswell Enterprises has two divisions: the Motor Division and the Device Division. The Motor Division manufactures electric motors, which are transferred to the Device Division to make medical devices. The medical devices are sold to the external market for $1050 per unit. While the Motor Division can sell their motors directly to the external market for $380 per unit, it would also incur an additional selling cost of $8 per unit. The standard cost of a medical device is as follows: Motor Division Device Division Direct material $ 80 $250 Direct labour $50 $160 Variable overhead $ 70 $190 Fixed overhead $ 110 $ 230 The direct material cost of the Device Division in the table above does not include the transfer price for the motor. Required: (a) Assume that the Motor Division has spare capacity. Calculate the transfer price using the general rule. Show workings. (1 mark) (b) Assume that the Motor Division has no spare capacity. Calculate the transfer price using the general rule. Show workings. (1 mark) (c) Assume that the Motor Division has no spare capacity. Calculate the transfer price if it is based on standard absorption cost plus a 20% markup. Is it likely that the internal transfer will take place? Explain your answer from the perspective of each division. (3 marks) (d) Assume that both divisions have spare capacity. The Device Division has been approached by the management of a medical equipment company with a special order for 1000 devices at $870 each. (i) From the perspective of Crosswell Enterprises as a whole, should the special order be accepted or rejected? Explain why. (2 marks) (ii) Calculate the transfer price if it is based on absorption cost plus 10%. Would an autonomous Device Division manager accept or reject the special order? (2 marks) (iii) Assume that Crosswell Enterprises decides to accept the special order. Calculate the minimum and maximum transfer price acceptable by both divisional managers. (1 mark)

Answer rating: 100% (QA)

a Transfer price Direct material Direct labor Variable overhead Variable cost per unit b Transfer pr... View the full answer