Question

SHOW WORK FOR BOTH PROBLEMS PLEASE!!!

1.) The Heating Division of Kobe International produces a heating element that it sells to its customers for $47 per unit. Its variable cost per unit is $30, and its fixed cost per unit is $8. Top management of Kobe International would like the Heating Division to transfer 14,700 heating units to another division within the company at a price of $35. The Heating Division is operating at full capacity. Assume that the units being requested are special high-performance units and that the division's variable cost would be $24 per unit (rather than $30). What is the minimum transfer price that the Heating Division should accept?

Minimum transfer price =

2.) Mussatto Corporation produces snowboards. The following per unit cost information is available: direct materials $15, direct labor $9, variable manufacturing overhead $10, fixed manufacturing overhead $12, variable selling and administrative expenses $5, and fixed selling and administrative expenses $8. Using a 39% markup percentage on total per unit cost, compute the target selling price. (Round answer to 2 decimal places, e.g. 10.50.)

Target selling price=

Answer 1

• Question 1

Minimum Transfer Price will include:

---Unit Variable cost to produce a unit required to be transferred,
---Amount of any avoidable fixed cost,
---Amount of any contribution margin on normal sale that will be lost due to transfer of the units.

It has been mentioned that division is operating at full capacity. If division transfers 14700 units, contribution margin will be lost on those 14700 units.

Calculation of Minimum Transfer Price:

Variable cost to produce 1 unit to be transferred		$              24.00
Avoidable Fixed Cost		$                     -
Unit sale price of normal sale	$              47.00
Unit Variable cost of normal sold unit	$            (30.00)
Unit Contribution margin lost due to units being transferred		$              17.00
Minimum Transfer Price		$              41.00

• Question 2

A	Direct Materials	$              15.00
B	Direct Labor	$                9.00
C	Variable Manufacturing Overhead	$              10.00
D	Fixed manufacturing overhead	$              12.00
E	Variable selling & admin expenses	$                5.00
F	Fixed selling & admin expenses	$                8.00
G = A+B+C+D+E+F	Total Per unit Cost	$              59.00
H = G x 39%	39% Mark up	$              23.01
I = G + H	Target Selling Price	$              82.01