Money Corporation has two divisions,X and Y.Division X sells its product to Division Y.Standard costs for Division X are as follows: $\begin{array}{llcc}
\text {Direct materials } & \text {$ \$ 4 $ per unit } \
\text { Direct labour} & \text {2 per unit } \
\text { Variable overhead } & \text { 5 per unit } \
\text { Fixed overhead } & \text { 3 per unit } \
\text {Total } & \text { \$14 per unit} \
\end{array}$
What is the transfer price for Division X based on standard variable cost plus a markup of 25 percent?
A)$7.50
B)$11.00
C)$13.75
D)$17.50

Question

Money Corporation has two divisions,X and Y.Division X sells its product to Division Y.Standard costs for Division X are as follows: $\begin{array}{llcc}
  \text {Direct materials  } &  \text {$ \$ 4 $ per unit  } \
  \text {  Direct labour} &  \text {2 per unit  } \
  \text { Variable overhead } &  \text { 5 per unit } \
  \text { Fixed overhead } &  \text { 3 per unit } \
  \text {Total  } &  \text { \$14  per unit} \
\end{array}$
 What is the transfer price for Division X based on standard variable cost plus a markup of 25 percent?
A)$7.50
B)$11.00
C)$13.75
D)$17.50

Quizplus · Accepted Answer

The standard variable cost for Division X is $10. This cost will be marked up by 25%, which is equal to $2.50 ($10 x 0.25 = $2.50). Therefore, the transfer price for Division X is $12.50 ($10 + $2.50 = $12.50). So, the best choice is (C), $13.75, which is the closest option to $12.50 after being marked up by 25%.

Money Corporation Has Two Divisions,X and Y What Is the Transfer Price for Division X Based on Product