HOMEWORK CHAPTER 8

E8-15:

a. Minimum transfer price = 130 – 8 + 0 = $122

b. Minimum transfer price = (130 – 8) + (160 – 130) = $152

c. No. By forcing the Appraisal Department to accept the $150 per appraisal
price, management is penciling the Appraisal department. If the department was
allowed to sell its services to outside customers, it could earn $30 (160 – 130) in
contribution margin per appraisal. Forcing them to sell their service internally
would allow them to earn only $28 (150 – 122) in contribution margin. A loss
of $2 per appraisal or a total of $2,400 would result.

P8-1A

a. Total variable cost per unit = Direct material cost per unit + Direct labor cost
per unit + Variable manufacturing cost per unit + Variable selling &
administrative expenses per unit = 25 + 40 + 10 + 5 = $80

Total fixed cost per unit = (1,440,000 + 960,000)/80,000 = $30

Total cost per unit = 80 + 30 = $110

b. The desired ROE per unit = 110 * 35% = $38.5

c. Target selling price = 110 + 38.5 = $148.5

d. Variable cost per unit = $80

Fixed cost per unit = (1,440,000 + 960,000)/60,000 = $40

Total cost per unit = 80 + 40 = $120

P8-3A

a. Labor rate for Sutton’s Electronic Repair Shop:

Total cost : Total hours = Per hour charge

Hourly labor rate for repairs

shop employee’s wages and $108,000 5,000 $21.6
benefits

b.

Material Total Invoice cost, Material

loading : parts and = Loading
charges materials Percentage

Overhead costs

Parts manager’s salary &

25,400
benefits

Office employee’s salary &

13,600
benefits

39,000 : 100,000 = 39%

Other overhead 16,000 : 100,000 = 16%

Total 55,000 : 100,000 = 55%

Profit margin 25%

Material loading percentage 80%

 a)

Total cost : Total hours = Per hour charge

Hourly labor rate for repairs

Shop employee’s wages

108,000 : 5,000 = $21.6
&benefits

Overhead costs

Office employee’s salary &

23,500 : 5,000 = 4.7
benefits

Other overhead 26,000 : 5,000 = 5.2

Total $157,000 : 5,000 = 31.5

Profit margin 10.0

Rate per charged per hour of labor $41.5