Question

required 3 only, and a direct answer please!!!!

Shaw is a lumber company that also manufactures custom cabinetry. It is made up of two divisions: Lumber and Cabinetry. The Lumber Division is responsible for harvesting and preparing lumber for use the Cabinetry Division produces custom-ordered cabinetry. The lumber produced by the Lumber Division has a variable cost of $200 per linear foot and full cost of $3.00. Comparable quality wood sells on the open market for $6.00 per linear foot Required: 1. Assume you are the manager of the Cabinetry Division. Determine the maximum amount you would pay for lumber. 2. Assume you are the manager of the Lumber Division. Determine the minimum amount you would charge for the lumber if you have excess capacity. Repeat assuming you have no excess capacity. 3. Assume you are the president of Shaw. Determine a mutually beneficial transfer price assuming there is excess capacity Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Assume you are the president of Shaw. Determine a mutually beneficial transfer price assuming there is excess capacity y Beneficial Transfer Price s M < Reguled 2 < Prev 304 Next > o search

Answer 1

Since there is excess capacity, no additional fixed costs will be incurred for the special order

Relevant cost is variable cost per unit I.e. $2

Benefits of transfer = market price - relevant cost

=6-2

=$4 per unit

Hence, mutually beneficial transfer price assuming benefits are distributed equally = 2+4/2

=$4 per unit