Colorado Furniture had the following historical accounting data, per hundred board feet, concerning one of its products: The shelving is normally transferred internally from the Cutting Division to the Finishing Division.It also may be sold externally for $110 per hundred board feet.The minimum profit level accepted by the company is a markup of 20 percent.
If the variable manufacturing cost transfer price method is used without a fixed fee, Colorado Furniture's transfer price will be
A) $68
B) $84
C) $56
D) $64

Question

Colorado Furniture had the following historical accounting data, per hundred board feet, concerning one of its products:  The shelving is normally transferred internally from the Cutting Division to the Finishing Division.It also may be sold externally for $110 per hundred board feet.The minimum profit level accepted by the company is a markup of 20 percent.
If the variable manufacturing cost transfer price method is used without a fixed fee, Colorado Furniture's transfer price will be
A) $68 
B) $84 
C) $56 
D) $64

Quizplus · Accepted Answer

To calculate the transfer price using the variable manufacturing cost transfer price method, we need to add a markup to the variable manufacturing cost per hundred board feet.
Variable manufacturing cost per hundred board feet = $40 + $10 + $12 + $6 = $68
Markup percentage accepted by the company = 20%
Markup amount = 20% × $68 = $13.6
Transfer price = Variable manufacturing cost per hundred board feet + Markup amount = $68 + $13.6 = $81.6
However, the transfer price cannot be less than the external selling price of $110 per hundred board feet, so the transfer price will be $110 instead of $81.6.
Therefore, the minimum transfer price that Colorado Furniture can charge for the shelving is $110. Option C is the closest option to $110, which is $56.

Colorado Furniture Had the Following Historical Accounting Data, Per Hundred