Question

4. The Stake Division of the Outdoor Lumination Company produces stakes which can be sold to outside customers or transferred to the Solar Light Division of the Outdoor Lumination Company. Last year, the Solar Light Division bought 90,000 stakes from the Stake Division at $3.60 each. The following data are available for last year's activities in the Stake Division:

Capacity in units		450,000	stakes
Quantity sold to outside customers		360,000	stakes
Selling price per stake to outside customers	$	4.00
Total variable costs per stake	$	3.25
Fixed operating costs	$	300,000

In order to sell 90,000 stakes to the Solar Light Division, the Stake Division must give up sales of 54,000 stakes to outside customers. That is, the Stake Division could sell 414,000 stakes each year to outside customers (rather than only 360,000 stakes as shown above) if it were not making sales to the Solar Light Division.

According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

$3.60.

$3.25.

$4.00.

$3.70.

5.The predetermined overhead rate for manufacturing overhead for 2016 is $5.00 per direct labor hour. Employees are expected to earn $6.00 per hour and the company is planning on paying its employees $300,000 during the year. However, only 75% of the employees are classified as "direct labor." What was the estimated manufacturing overhead for 2016?

$225,000.

$270,000.

$187,500.

$237,500.

6. Upton Company produces two main products and a by-product out of a joint process. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. Upton has employed the physical-volume method to allocate joint production costs to the two main products. The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding Upton's operations for the current month are presented in the chart below. During the month, Upton incurred joint production costs of $3,032,280. The main products are not marketable at the split-off point and, thus, have to be processed further.
   

	First Main Product			Second Main Product			By-Product
Monthly output in pounds		98,400			160,500			66,300
Selling Price per pound	$	22		$	12		$	2
Separable process costs	$	590,400		$	706,200

The amount of joint production cost that Upton would allocate to the Second Main Product by using the physical quantities method to allocate joint production costs would be:

$1,497,600.

$1,797,600.

$1,879,803.

$1,557,600.

Answer 1

4
Contribution margin lost on outside sales	40500	=54000*(4-3.25)
Variable costs per stake	3.25
Add: Contribution margin lost per stake	0.45	=40500/90000
Lowest acceptable transfer price	3.70
Option 4 $3.70 is correct
5
Direct labor cost	225000	=300000*75%
Direct labor hours	37500	=225000/6
Estimated manufacturing overhead for 2016	187500	=37500*5
Option 3 $187,500 is correct
6
Joint production costs	3032280
Less: Net realizable value of the by-product	132600	=66300*2
Joint production costs to be allocated	2899680
Total Monthly output in pounds	258900	=98400+160500
Joint production costs allocated to Second Main Product	1797600	=2899680/258900*160500
Option 2 $1,797,600 is correct