Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high-end watches. Each division's costs are provided below:

The Distribution Division has been operating at a capacity of 4,009,000 units a week and usually purchases 2,004,500 units from the Manufacturing Division and 2,004,500 units from other suppliers at $10.00 per unit.
What is the transfer price per watch from the Manufacturing Division to the Distribution Division, assuming the method used to place a value on each watch is 170% of variable costs?
A) $1.87
B) $3.18
C) $3.19
D) $8.13

Question

Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high-end watches. Each division's costs are provided below:

The Distribution Division has been operating at a capacity of 4,009,000 units a week and usually purchases 2,004,500 units from the Manufacturing Division and 2,004,500 units from other suppliers at $10.00 per unit.
What is the transfer price per watch from the Manufacturing Division to the Distribution Division, assuming the method used to place a value on each watch is 170% of variable costs?
A) $1.87 
B) $3.18 
C) $3.19 
D) $8.13

Quizplus · Accepted Answer

Transfer price = 1.7 × $1.87 = $3.18

Timekeeper Corporation Has Two Divisions, Distribution and Manufacturing