Question 3 - (13 Marks)

Part A - (5 marks)

Superior Sanitiser is manufacturer and supplier of hand sanitisers. Due to the corona virus health crises there is a great demand for their products in the current marketplace. The glass bottles are produced in the bottle division, and then transferred to the liquid division, where they are filled with sanitiser liquid.

The company's best-selling product is 'Kenkey Hand Sanitiser'. The standard cost of the bottle of Kenkey is shown in the following table:

Bottle division

Liquid division

Direct material

$10

$20

Direct labour

$20

$10

Variable Overhead

$25

$32

Total standard cost

$68

$80

Bottle division can also sell the bottles directly to glass bottle wholesalers. The sales price for a unit of bottles is $85. The liquid division sells its finished product for $6.00.

Required:

1.Assume that there is no spare capacity in the Bottle division:

a.Use general rule to calculate the transfer price for bottles(1 mark).

Calculate the transfer price if it is based on standard variable cost with a 10% mark-up