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 4,010,000 units a week and usually purchases 2,005,000 units from the Manufacturing Division and 2,005,000 units from other suppliers at $15.00 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 transfer is 125% of full costs?
A) $11.49
B) $14.36
C) $15.00
D) $19.25

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 4,010,000 units a week and usually purchases 2,005,000 units from the Manufacturing Division and 2,005,000 units from other suppliers at $15.00 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 transfer is 125% of full costs?
A) $11.49 
B) $14.36 
C) $15.00 
D) $19.25

Quizplus · Accepted Answer

Transfer price = 1.25 × $11.49 = $14.36

Timekeeper Corporation Has Two Divisions, Distribution and Manufacturing