Question 1:

Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $10 per pound. Division A incurs costs of $1.25 per pound while Division B incurs additional costs of $5.00 per pound.

A1) What is Division A's operating income per burger, assuming the transfer price of the ground veal is set at $2.00 per burger?

A2) What is the company's net operating income from the sale of per pound of veal burger?

B) Division A has variable manufacturing costs of $25 per unit and fixed costs of $5 per unit. If Division A is operating at capacity, what is the opportunity cost of an internal transfer when the market price is $35?

Use the following information to answer Question 2 & Question 3

Russet Company has two service departments and two producing departments. Budgeted costs and budgeted activity in the various departments for the most recent year are presented below:

Service departmentsOperating Departments

CustodialCafeteriaCuttingAssembly

Overhead costs ......... $252,000 $140,000 $600,000 $900,000

Square feet of space occupied .... 1,000 2,000 8,000 10,000

Number of employees .... 20 30 150 200

Machine-hours .......... 40,000 60,000

Service Department costs are allocated to operating departments with the costs of Custodial Services allocated on the basis of square feet of space occupied. The costs of the Cafeteria are allocated on the basis of number of employees. Predetermined overhead rates in the Cutting and Assembly Departments are based on machine-hours. Round all calculations to the nearest dollar.

2. Under the direct method of cost allocation, calculate the total overhead costs and the predetermined overhead rates for the year in the Cutting and Assembly Departments?

3. Under the step method of cost allocation, calculate the total overhead costs and the predetermined overhead rates for the year in the Cutting and Assembly Departments?