Figure 12-3Grey Inc. has many divisions that are evaluated on the basis of ROI. One division, Centra, makes boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs the following costs for one box:
$\begin{array}{ll}
\text { Direct materials } & \$ 0.35 \
\text { Direct labor } & \$ 0.60 \
\text { Variable overhead } & \$ 0.40 \
\text { Fixed overhead } & \$ 0.13 \
\text { Total } & \$ 1.48
\end{array}$ Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives).
-Refer to Figure 12-3. Assume that Grey Inc. mandates that any transfers take place at full manufacturing cost. What would be the transfer price if Centra transferred boxes to Mantra?
A) $1.35
B) $1.48
C) $1.00
D) Cannot be determined from the information given.
E) $0.90

Question

Figure 12-3Grey Inc. has many divisions that are evaluated on the basis of ROI. One division, Centra, makes boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs the following costs for one box:
 $\begin{array}{ll}
\text { Direct materials } & \$ 0.35 \
\text { Direct labor } & \$ 0.60 \
\text { Variable overhead } & \$ 0.40 \
\text { Fixed overhead } & \$ 0.13 \
\text { Total } & \$ 1.48
\end{array}$ Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives).
-Refer to Figure 12-3. Assume that Grey Inc. mandates that any transfers take place at full manufacturing cost. What would be the transfer price if Centra transferred boxes to Mantra?
A) $1.35
B) $1.48
C) $1.00
D) Cannot be determined from the information given.
E) $0.90

Quizplus · Accepted Answer

The transfer price, if mandated at full manufacturing cost, would include direct materials, direct labor, variable overhead, and fixed overhead, totaling $1.48.

Figure 12-3Grey Inc Centra Has Capacity to Make 700,000 Boxes Per Year