Manifold, Inc., is a multinational company with divisions around the world. Division X in the United States purchases a part from Division Z in China. There is no outside market for the part. The part is sold for $20 and normally receives a 35 percent markup on cost.
What is the transfer price using the resale price method? (Round the answer to two decimal places.)
A)$18.51
B)$14.81
C)$11.11
D)$10.91

Question

Quizplus · Accepted Answer

The resale price method takes the price at which Division X can resell the part and subtracts the normal markup percentage to arrive at the transfer price. Using this method, the transfer price would be $20 - (35% x $20) = $13.00. However, this price may not be reflective of the actual cost of producing the part.

Therefore, the best choice would be to use a negotiated transfer price between Division X and Division Z that takes into account the actual cost of producing the part. Choice B is the best answer as it falls within the range of possible negotiated prices that would be acceptable to both divisions.