management accounting question

ch16_EOC_material(1) summary.pdf – Adobe Acrobat Reader DCXFile Edit View Window HelpHomeToolsch16_EOC_material… x(?Sign In11 / 1475%do Share16.27 Transfer price; entity versus division profit; idle capacityLO4, 5The furniture division of International Woodworking purchases timber and makes tables, chairsand other wood furniture. Most of the timber is purchased from the Port Angeles Mill, also a div-Search ‘Bates’ision of International Woodworking. The furniture division and the Port Angeles Mill are profitcentres. The furniture division manager proposed a new Danish-designed chair that will sell forExport PDFCHAPTER 16 Responsibility accounting, performance evaluation and transfer pricing 625Adobe Export PDFConvert PDF Files to Wordor Excel Online$150. The manager wants to purchase the timber from the Port Angeles Mill. Production ofSelect PDF File800 chairs is planned using capacity in the furniture division that is currently idle. The furnituredivision can purchase the timber for each chair from an outside supplier for $60. InternationalWoodworkers has a policy that internal transfers are priced at variable cost plus allocated fixedch16_EOC_..mmary.pdfXcosts. Assume the following costs for the production of one chair:Convert toPort Angeles MillFurniture divisionVariable cost$40Variable costsAllocated fixed costTimber: Port Angeles Mill$ 70Microsoft Word (*.docx)vFully absorbed$70Furniture division variable costs:Manufacturing75Selling10Document Language:Total variable cost$155English (U.S.) ChangeRequired(a) Assume that the Port Angeles Mill has idle capacity and would incur no additional fixedcosts to produce the required timber. Would the furniture division manager buy the timber forthe chair from the Port Angeles Mill, given the existing transfer price policy? Why?Convert and edit PDFs(b) Calculate the contribution margin for the entity as a whole if the manager decides to buywith Acrobat Pro DCfrom the Port Angeles Mill and is able to sell 800 chairs.(c) What transfer price policy would you recommend if the Port Angeles Mill always has idle(excess) capacity? Explain why this transfer price policy provides incentives for the managersStart Free Trialto act in the best interests of the entity as a whole.(d) Explain how the idle capacity affects the recommendation in part (c).16.28 Transfer price; incentives for internal servicesLO4, 5Type here to searcheWOENG6:33 PM29/05/2020