23 & 24

QUESTION 23 Freddy Inc. makes car audio systems. It is a divsion of Mercury Automotive which manufactures cars. Freddy Inc. sells systems to other divisions of Mercury Automotive as well as to other vehicle manufacturers and retail stores. The following information is available for Freddy's standard unit: variable cost per unit $31, fixed cost per unit $23, and selling price to outside customers $85. Mercury Automotive currently purchases a standard unit from an outside supplier for $80. Because of quality concerns and to ensure a reliable supply, the top management of Mercury Automotive has ordered Freddy Inc. to provide 200,000 units per year at a transfer price of $30 per unit. Freddy is already operating at full capcity. Freddy can avoid $2 per unit of variable selling costs by selling the unit internally. a. What is the minimum transfer price that Freddy Inc. should accept? b. What is the potential loss to the corporation as a whole resulting from a forced transfer price of $30 per unit? QUESTION 24 Sherburne Snow Removal's cost formula for its vehicle operating cost is $2,510 per month plus $371 per snow-day. For the month of March, the company planned for activity of 18 snow-days, but the actual level of activity was 17 snow-days. The actual vehicle operating cost for the month was $8,460. The vehicle operating cost in the flexible budget for March would be closest to $8,678 O $8,460 O $8,817 O $9, 188