Sweater Division of Clothes, Inc., manufactures sweaters. The buttons used in production are presently purchased from an outside supplier at a cost of $4.50 for a set of twelve buttons. A division of Clothes, Inc., called the Button Division, has just begun producing a similar button which can be used by the Sweater Division. Current per unit cost data for the button produced by the Button Division are as follows:
$\begin{array}{ll}
\text { Directmaterial } & \$ 1.30 \
\text { Directlabor } & 90 \
\text { Variablemanufacturingoverhead } & .35 \
\text { Fixed manufacturingoverhead } & \mathbf{3 0} \
\text { Variablesellingexpenses } & \mathbf{5 0} \
\text { Fixed sellingexpenses } & .45
\end{array}$ Variable selling expenses would not be incurred on inside transfers. Required:
a. What is the minimum transfer price that the Button Division should charge the Sweater Division for each
set of buttons?
b. What is the maximum transfer price that the Sweater Division should be willing to pay for each set of buttons?

Question

Sweater Division of Clothes, Inc., manufactures sweaters. The buttons used in production are presently purchased from an outside supplier at a cost of $4.50 for a set of twelve buttons. A division of Clothes, Inc., called the Button Division, has just begun producing a similar button which can be used by the Sweater Division. Current per unit cost data for the button produced by the Button Division are as follows:
 $\begin{array}{ll}
\text { Directmaterial } & \$ 1.30 \
\text { Directlabor } & 90 \
\text { Variablemanufacturingoverhead } & .35 \
\text { Fixed manufacturingoverhead } & \mathbf{3 0} \
\text { Variablesellingexpenses } & \mathbf{5 0} \
\text { Fixed sellingexpenses } & .45
\end{array}$ Variable selling expenses would not be incurred on inside transfers. Required:
a. What is the minimum transfer price that the Button Division should charge the Sweater Division for each
set of buttons?
b. What is the maximum transfer price that the Sweater Division should be willing to pay for each set of buttons?

Quizplus · Accepted Answer

The Answer of Sweater Division of Clothes, Inc., manufactures sweaters. The buttons used in production are presently purchased from an outside supplier at a cost of $4.50 for a set of twelve buttons. A division of Clothes, Inc., called the Button Division, has just begun producing a similar button which can be used by the Sweater Division. Current per unit cost data for the button produced by the Button Division are as follows:
 $\begin{array}{ll}
\text { Directmaterial } & \$ 1.30 \
\text { Directlabor } & 90 \
\text { Variablemanufacturingoverhead } & .35 \
\text { Fixed manufacturingoverhead } & \mathbf{3 0} \
\text { Variablesellingexpenses } & \mathbf{5 0} \
\text { Fixed sellingexpenses } & .45
\end{array}$ Variable selling expenses would not be incurred on inside transfers. Required:
a. What is the minimum transfer price that the Button Division should charge the Sweater Division for each
set of buttons?
b. What is the maximum transfer price that the Sweater Division should be willing to pay for each set of buttons?

Sweater Division of Clothes, Inc Variable Selling Expenses Would Not Be Incurred on Inside Transfers