The Kelly Division of Zimmer Company Sells All of Its

Essay

The Kelly Division of Zimmer Company sells all of its output to the Finishing Division of the company. The only product of the Kelly Division is chair legs that are used by the Finishing Division. The retail price of the legs is £20 per leg. Each chair completed by the Finishing Division requires four legs. Production quantity and cost data for 2011 are as follows: $\begin{array}{lr}\text { Chair legs } & £ 30,000 \\\text { Direct materials } & £ 135,000 \\\text { Direct labour } & £ 90,000 \\\text { Factory overhead (25\% is variable) } & £ 90,000 \\\text { Operating expenses (20\% is variable) } & £ 150,000\end{array}$
Required:

Compute the transfer price for a chair leg using:
a.market price.
b.variable product costs plus a fixed fee of 20 per cent.
c.full cost plus 20 per cent markup.
d.variable costs.
e.full cost plus 10 per cent markup.