Monday 11 November 2013

Clearview Window Company manufactures windows for the home-building industry. The window frames are produced in the Frame Division. The frames are then transferred to the Glass Division, where the glass and hardware are installed. The company’s best-selling product is a three-by-four-foot, doublepaned operable window.


Clearview Window Company manufactures windows for the home-building industry. The window frames are produced in the Frame Division. The frames are then transferred to the Glass Division, where the glass and hardware are installed. The company’s best-selling product is a three-by-four-foot, doublepaned operable window.


     The Frame Division also can sell frames directly to custom home builders, who install the glass and hardware. The sales price for a frame is $80. The Glass Division sells its finished windows for $190. The markets for both frames and finished windows exhibit perfect competition.

     The standard variable cost of the window is detailed as follows:


Frame
Division
Glass
Division
  Direct material
$
15

$
30
*
  Direct labor

20


15

  Variable overhead

30


30

  






     Total
$
65

$
75

  














*Not including the transfer price for the frame.
Required:

1-a.
Assume that there is no excess capacity in the Frame Division. Use the general rule to compute the transfer price for window frames. (Omit the "$" sign in your response.)

  Transfer price
$ 80 correct  

1-b.
Calculate the transfer price if it is based on standard variable cost with a 10 percent markup. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)


  Transfer price
$ 71.50 correct  

2-a.
Assume that there is excess capacity in the Frame Division. Use the general rule to compute the transfer price for window frames. (Omit the "$" sign in your response.)






  Transfer price
$ 65 correct  

2-c.
Suppose the predetermined fixed-overhead rate in the Frame Division is 125 percent of direct-labor cost. Calculate the transfer price if it is based on standard full cost plus a 10 percent markup. (Omit the "$" sign in your response.)

  Transfer price
$ 99 correct  

2-d.
The Glass Division has been approached by the U.S. Army with a special order for 1,000 windows at $155.

(i)
Calculate the contribution per window in special order for Weathermaster Window Company. (Omit the "$" sign in your response.)

  Contribution per window
$ 15 correct  

(ii)
From the perspective of Weathermaster Window Company as a whole, should the special order be accepted or rejected?



Accepted correct

2-e.
Assume the transfer price established in part (2c).

(i)
Calculate the contribution per window in special order for Glass Division. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

  Contribution per window
$ -19 correct  

(ii)
Will an autonomous Glass Division manager accept or reject the special order?



Reject correct

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