Question

The company anticipated that the restorers would work a total of 12.000 hours this year. Expected parts and materials were $1.260,000 In late January, the company experienced a fire in its facilities that destroyed most of the accounting records. The accountant remembers that the hourly labor rate was $70.00 and that the material loading charge was 83.25% Instructions a. Determine the profit margin per hour on labor. b. Determine the profit margin on materials. c. Determine the total price of labor and materials on a job that was completed after the fire that re- quired 150 hours of labor and $60,000 in parts and materials. E8.11 (LO 4), AP Writing Chen Company's Small Motor Division manufactures a number of small motors used in household and office appliances. The Household Division of Chen then assembles and packages such items as blenders and juicers. Both divisions are free to buy and sell any of their Com- ponents internally or externally. The following costs relate to small motor LN233 on a per unit basis. ansfer price Fixed cost per unit Variable cost per unit Selling price per unit $ 5 $11 $35 Instructions a. Assuming that the Small Motor Division has excess capacity, compute the minimum acceptable price for the transfer of small motor LN233 to the Household Division. b. Assuming that the Small Motor Division does not have excess capacity, compute the minimum acceptable price for the transfer of the small motor to the Household Division. c. Explain why the level of capacity in the Small Motor Division has an effect on the transfer price. E8.12 (LO 4), AN The Cycle Division of Ayala Company has the following per unit data related to its most recent cycle called Roadbuster. Selling price Variable cost of goods sold $2,200 Body frame Other variable costs $300 900 1,200 Contribution m

just e8.11

Answer 1

1) Minimum transfer price = Variable cost + opportunity cost

Minimum transfer price = $11 + $0 = $11

2) Opportunity cost = $35 - $11 = $22

Minimum transfer price = Variable cost + opportunity cost

= $11 + $22

= $35

3) The level of capacity has an important role in computation of the appropriate transfer price. When there is excess capacity then the firm would incur the variable cost in it's production and as long as firm receives higher than the variable cost, it has a net gain. In the other hand when there is no excess capacity the firm has to forgo other projects thus creating an opportunity cost and increase in transfer price