Question

**1. Spring 20 Company has two divisions. Division A
manufactures a part that sells for $90 with a variable cost of $40.
Fixed cost per unit of the part is $20. Division B wants to
purchase the part from Division A. What is the minimum
transfer price if Division A is operating at capacity?**

**2.**

**Spring 20 Company manufactures lamps. The company
expects to sell 2,000 lamps for $100 each in April and 2,400 lamps
for $110 each in May. Sales are 15% cash and 85% on account.
Compute the total budgeted sales for May. You must show your work
for credit.**

3.

**Use the following to calculate the Direct Materials Cost
Standard per square foot:**

**Direct materials cost from the supplier are $12 per
square foot, net of purchase discount. Sales taxes amount to $1.00
per square foot. Freight-in amounts to $2.00 per square
foot.**

Answer #1

1 | Calculation of Minimum Transfer Price | |||||||||

Variable Cost | 40 | |||||||||

Contribution lost | 50 | |||||||||

Transfer Price | 90 | |||||||||

As the company is operating at full capacity minimum t/f price will include contribution margin. | ||||||||||

2 | Total Budgeted Sales for May | |||||||||

2400*110 | 264000 | |||||||||

3 | Direct material cost | |||||||||

Cost from Supplier | 12 | |||||||||

Freight | 2 | |||||||||

Material Cost | 14 | |||||||||

Sales tax expenses are not to be included in material cost |

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