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problem: The FRAMES “N MORE company has three divisions: Frames division, Glass division, and Pictures division. Frames division produces frames that are needed by Pictures division to manufacture final product. The firm has a negotiated transfer pricing policy.

Frames division’s unit costs and prices are as follows:  

Selling price to outside customers $12.00

Variable cost of production $7.00

Fixed cost of production $4.00

Market price of frames $10.00

[A] find out Frames Division’s contribution margin for this product?

[B] What amount would be considered the maximum price, in this ex & what value would be the maximum price (floor)?

[C] If Frames has idle capacity, determine the probable transfer price? describe your answer.

[D] If Frames is currently operating at full capacity, find out the probable transfer price? describe your answer.

Cost Accounting, Accounting

  • Category:- Cost Accounting
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