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##### Nancy Company and Better Food Company_Costing questions

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Question;Problem 1 - Nancy Company has budgeted sales of \$300,000;with the following budgeted costs;Direct;materials;\$60,000;Direct manufacturing labor;40,000;Factory overhead;Variable;30,000;Fixed;50,000;Selling and;administrative expenses;Variable;20,000;Fixed;30,000;Question 1: Compute the average markup percentage for setting;prices as a percentage of the full cost of the product. (five points);Question 2: Compute the average markup percentage for setting;prices as a percentage of the variable cost of the product. (five points);Question 3: Compute the average markup percentage for setting;prices as a percentage of the variable manufacturing costs. (five points);Problem 2 - Better Food Company recently acquired an olive;oil processing company that has an annual capacity of 2,000,000 liters and that;processed and sold 1,400,000 liters last year at a market price of \$4 per;liter. The purpose of the acquisition was to furnish oil for the cooking;division. The cooking division needs 800,000 liters of oil per;year. It has been purchasing oil from suppliers at the market;price. Production costs at capacity of the olive oil company, now a;division, are as follows;Direct materials per liter;\$1.00;Direct processing labor;0.50;Variable processing overhead;0.24;Fixed processing overhead;0.40;Total;\$2.14;Management is trying to decide what transfer price to use for;sales from the newly acquired company to the cooking division. The;manager of the olive oil division argues that \$4, the market price, is;appropriate. The manager of the cooking division argues that the cost of;\$2.14 should be used, or perhaps a lower price, since fixed overhead cost;should be recomputed with the larger volume. Any output of the olive oil;division not sold to the cooking division can be sold to outsiders for \$4 per;liter.;Question 1: Compute the operating income for the olive oil;division using a transfer price of \$4. (five points);Question 2: Compute the operating income for the olive oil;division using a transfer price of \$2.14. (five points);Question 3: What transfer price(s) do you recommend? Compute;the operating income for the olive oil division using your recommendation.;(five points)

Paper#44595 | Written in 18-Jul-2015

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