Figure 20-4 the Simonds Division Produces a Component That Is Used by Used

question 46

Multiple Choice

Figure 20-4
The Simonds Division produces a component that is used by the Allen Division. The cost of manufacturing the component is as follows: ^aBased on a practical volume of 400,000 components
Other costs incurred by the Simonds Division are as follows: The component usually sells for £35 in the external market. The Simonds Division is capable of producing 500,000 components per year; however, only 400,000 components are expected to be sold next year. The variable selling expenses are avoidable if the component is sold internally.
The Allen Division has been buying the same component from an external supplier for £34 each. The Allen Division expects to use 50,000 units of the component next year. The manager of the Allen Division has offered to buy 50,000 units from the Simonds Division for £22.50 each.
-Refer to Figure 20-4. The minimum transfer price that the Simonds Division would accept is

• A) £25.
• B) £21.
• C) £20.
• D) £16.

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Definitions:

Labor Efficiency Variance

The difference between the actual number of labor hours worked and the standard hours expected, multiplied by the standard labor rate.

Labor Rate Variance

The difference between the actual cost of labor and its expected cost based on standards or budgets.

Direct Labor Employees

Workers who are directly involved in the manufacturing of products, including those who operate machinery, assemble products, or perform manual labor that can be directly attributed to specific goods or services.

Favorable Variances

Differences between actual and budgeted or standard cost figures that are financially beneficial to a company.