Question

PART 1

The materials used by the Hibiscus Company Division A are currently purchased from outside supplier at $55 per unit. Division B is able to supply Division A with 23,100 units at a variable cost of $52 per unit. The two divisions have recently negotiated a transfer price of $51 per unit for the 23,100 units. By how much will each division's income and the company's total income change as a result of this transfer? Enter an increase as a positive number and a decrease as a negative number.

Change in income for Division A	$___?
Change in income for Division B	$___?
Total change in income for Hibiscus Company	$___?

PART 2

The standard costs and actual costs for factory overhead for the manufacture of 2,800 units of actual production are as follows:

Standard Costs
Fixed overhead (based on 10,000 hours)	3 hours per unit @ $0.70 per hour
Variable overhead	3 hours per unit @ $1.98 per hour
Actual Costs
Total variable cost, $18,100
Total fixed cost, $8,200

The amount of the variable factory overhead controllable variance is

a.$1,174 favorable

b.$1,468 unfavorable

c.$1,468 favorable

d.$0

Answer 1

Change in income of division A	$92400
Change in income of division B	($23100)
Total change in income for Hibiscus Company	$69300

Working notes

Change in income of division A =(Market price - agreed transfer price )× total number of units

Change in income of division A = ($55-51)*23100 units = $92400

Change in income of division B = ( transfer price - variable cost ) × total number of units

($51-52) ×23100 units =- $23100

Total change in income for Hibiscus Company = change in income of division A - change in income of division B

$92400-23100= $69300

Part 2

​​​​​​Correct answer is option B $1468 unfavorable

Variable factory overheard controllable variance =

Actual variable expenses - (budgeted overhead per unit x standard number of units)

Actual variable cost = $18100

Budgeted variable cost = total number of units × standard hours per Unit × standard rate per hour

2800 unit × 3 hours × $1.98= $16632

Variable factory overhead controllable variance =$ 18100 -13662= $1468 unfavorable

Actual cost is more than the standard cost so it is unfavorable .