Whitney Company treats each division as a profit center and expects a 20 percent profit on its total production costs.Division A produces a part that it sells externally for $19.00.It also supplies this part to other internal divisions.Its production cost for the part is $13.70.
-What should be the transfer price for the part using the cost-plus approach?

Question

Quizplus · Accepted Answer

Using the cost-plus approach, we need to add the 20% profit margin to the production cost of $13.70.
20% of $13.70 = $2.74
Transfer price = Production cost + Profit margin
Transfer price = $13.70 + $2.74 = $16.44
Therefore, the transfer price should be $16.44, which is option B.

Whitney Company Treats Each Division as a Profit Center and Expects