Illinois Mower Manufacturing Company has three divisions. Engine components are transferred from Components to Assembly. Assembled engines are transferred from Assembly to the Mower Division. Costs for each division are given below. Mowers are sold on a competitive outside market for $125. There are no outside markets for engine components or assembled engines.
This period, Components sends Assembly 5,000 packages of engine components.
Using a market based transfer price, determine the amount Assembly would pay Components:
A) Cannot be determined from the information provided
B) Is based on the Component's division's variable cost
C) Is based on the Component's division's full absorption cost
D) Is the $125 market price of the mowers

Question

Illinois Mower Manufacturing Company has three divisions. Engine components are transferred from Components to Assembly. Assembled engines are transferred from Assembly to the Mower Division. Costs for each division are given below. Mowers are sold on a competitive outside market for $125. There are no outside markets for engine components or assembled engines.
 This period, Components sends Assembly 5,000 packages of engine components.
Using a market based transfer price, determine the amount Assembly would pay Components:
A) Cannot be determined from the information provided 
B) Is based on the Component's division's variable cost 
C) Is based on the Component's division's full absorption cost 
D) Is the $125 market price of the mowers

Quizplus · Accepted Answer

To determine the market-price transfer of components sent to Assembly by the Components Division, we would need to know the price for which the Components Division could sell the engine components in the outside market.

Illinois Mower Manufacturing Company Has Three Divisions