The Kelly Division of Zimmer Company Sells All of Its

question 36

Essay

The Kelly Division of Zimmer Company sells all of its output to the Finishing Division of the company. The only product of the Kelly Division is chair legs that are used by the Finishing Division. The retail price of the legs is £20 per leg. Each chair completed by the Finishing Division requires four legs. Production quantity and cost data for 2011 are as follows: $\begin{array}{lr}\text { Chair legs } & £ 30,000 \\\text { Direct materials } & £ 135,000 \\\text { Direct labour } & £ 90,000 \\\text { Factory overhead (25\% is variable) } & £ 90,000 \\\text { Operating expenses (20\% is variable) } & £ 150,000\end{array}$
Required:

Compute the transfer price for a chair leg using:
a.market price.
b.variable product costs plus a fixed fee of 20 per cent.
c.full cost plus 20 per cent markup.
d.variable costs.
e.full cost plus 10 per cent markup.

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Definitions:

Inferior Vena Cava

A large vein that carries deoxygenated blood from the lower and middle parts of the body to the right atrium of the heart.

Duodenum

The first section of the small intestine immediately beyond the stomach, which is primarily responsible for the initial stages of digestive processing.

Villi

Small, finger-like projections that extend into the lumen of the small intestine, increasing the surface area for absorption of nutrients.

Secretin

A hormone produced by the small intestine that regulates water homeostasis throughout the body and stimulates the secretion of digestive juices.