The Better Chair Company manufactures high-end chairs in alpha division in a country with a 35%...

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The Better Chair Company manufactures high-end chairs in alpha division in a country with a 35% income tax rate and transfers these chairs to beta division in a country with a 40% income tax. An import duty of 10% of the transfer price is paid on all imported products. The import duty is not deductible in computing taxable income. The fixed cost for a high-end chair is $300 and the variable cost is $650, which brings the full cost (i.e., total cost) for each chair to $950. They are sold by beta division for $1050. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price. TOTAL VARIANCES Plastic tubing Fabric Padding Direct labor TOTAL Alpha Division Taxes: Transfer Price Less (subtract) Cost Taxable Income Taxes (or refund) Beta Division Taxes: Sales Price Less (subtract) Transfer Price Taxable Income Income Taxes Import Duty Taxes (or refund) Total Taxes Full Cost 0 0 0 Variable Cost 0 0 0 d) Quantity variance = (actual quantity used in production-standard quantity used in production) times the standard price Plastic tubing Fabric Padding Actual Standard Standard Quantity Favorable or Quantity Quantity Price variance Unfavorable 4010 4000 36 unfavorable 262.5 375 Direct labor 3550 1600 f) Total quantity variance e) Labor efficiency variance = (actual hours - standard hours) times standard wage Actual hours 3500 1500 900 3.6 5.25 3.75 1000 unfavorable unfavorable Standard Standard Efficiency Favorable or variance Unfavorable hours wage -800 favorable 8 -126.5 favorable a) Price variance = (actual price - standard price) times quantity bought Plastic tubing Fabric Padding Direct labor Actual price c)Total price variance 3.64 5.26 3.8 Actual wage rate b) Wage rate variance = (Actual wage rate-standard wage rate) times actual hours 16 Standard Quantity Price price bought variance -160.4 35.5 80 107.57 3.6 5.25 3.75 Standard wage rate 16 4010 3550 1600 108.8 Actual hours 900 Favorable or Unfavorable unfavorable favorable favorable 500 Wage Favorable rate or variance Unfavorable 0 nil -615 favorable The Better Chair Company manufactures high-end chairs in alpha division in a country with a 35% income tax rate and transfers these chairs to beta division in a country with a 40% income tax. An import duty of 10% of the transfer price is paid on all imported products. The import duty is not deductible in computing taxable income. The fixed cost for a high-end chair is $300 and the variable cost is $650, which brings the full cost (i.e., total cost) for each chair to $950. They are sold by beta division for $1050. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price. TOTAL VARIANCES Plastic tubing Fabric Padding Direct labor TOTAL Alpha Division Taxes: Transfer Price Less (subtract) Cost Taxable Income Taxes (or refund) Beta Division Taxes: Sales Price Less (subtract) Transfer Price Taxable Income Income Taxes Import Duty Taxes (or refund) Total Taxes Full Cost 0 0 0 Variable Cost 0 0 0 d) Quantity variance = (actual quantity used in production-standard quantity used in production) times the standard price Plastic tubing Fabric Padding Actual Standard Standard Quantity Favorable or Quantity Quantity Price variance Unfavorable 4010 4000 36 unfavorable 262.5 375 Direct labor 3550 1600 f) Total quantity variance e) Labor efficiency variance = (actual hours - standard hours) times standard wage Actual hours 3500 1500 900 3.6 5.25 3.75 1000 unfavorable unfavorable Standard Standard Efficiency Favorable or variance Unfavorable hours wage -800 favorable 8 -126.5 favorable a) Price variance = (actual price - standard price) times quantity bought Plastic tubing Fabric Padding Direct labor Actual price c)Total price variance 3.64 5.26 3.8 Actual wage rate b) Wage rate variance = (Actual wage rate-standard wage rate) times actual hours 16 Standard Quantity Price price bought variance -160.4 35.5 80 107.57 3.6 5.25 3.75 Standard wage rate 16 4010 3550 1600 108.8 Actual hours 900 Favorable or Unfavorable unfavorable favorable favorable 500 Wage Favorable rate or variance Unfavorable 0 nil -615 favorable

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