GreenWorld Inc. is a nursery products firm. It has three divisions that grow and sell plants: the
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Direct materials ...... $35
Direct labor ......... 8
Variable overhead ..... 10
Fixed overhead* ....... 10
Total unit cost ....... $63
* Fixed overhead is based on $200,000/20,000 boxes.
Selling price ........ $75
Production capacity ..... 20,000 boxes
Required:
1. Suppose that the plastics factory is producing at capacity and can sell all that it produces to outside customers. How should Lorne respond to Rosario’s request for a lower transfer price?
2. Now assume that the plastics factory is currently selling 16,000 boxes. What are the minimum and maximum transfer prices? Should Lorne consider the transfer at $70 per box?
3. Suppose that GreenWorld’s policy is that all transfer prices be set at full cost plus 20 percent. Would the transfer take place? Why or why not?
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Related Book For
Cornerstones of Managerial Accounting
ISBN: 978-0324660135
3rd Edition
Authors: Mowen, Hansen, Heitger
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