The Wood Parts Division of Alpha Company Sells All of Its

question 115

Essay

The Wood Parts Division of Alpha Company sells all of its output to the Finishing Division of the company.The only product of the Wood Parts 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 are as follows:
Required: Compute the transfer price for a chair leg using:
$\begin{array}{lr}\text { Number of chair legs produced each year } & 30,000 \\\text { Direct materials } & \$ 135,000 \\\text { Direct labour } & \$ 90,000 \\\text { Factory overhead (25\% is variable) } & \$ 90,000\end{array}$ A. Market price
B. Variable product costs plus a fixed fee of $20 \%$
C. Full cost plus $20 \%$ markup
D. Variable costs

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Definitions:

Summer

One of the four temperate seasons, characterized by the warmest temperatures of the year, typically occurring between spring and autumn.

Winter

The coldest season of the year, occurring between autumn and spring, characterized by lower temperatures and shorter days.

Lake Zone

A specific area or region within or around a lake, often characterized by unique ecological characteristics or management requirements.

Benthic Zone

The ecological region at the lowest level of a body of water such as an ocean or a lake, including the sediment surface and some sub-surface layers.