Oller Corporation Oller Corporation produces various products used in the construction industry.The Plumbing Division produces and sells 100,000 copper fittings each month.Relevant information for last month follows:
Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division.
Refer to Oller Corporation.A transfer price based on variable cost will be set at ____ per unit.

Question

Oller Corporation Oller Corporation produces various products used in the construction industry.The Plumbing Division produces and sells 100,000 copper fittings each month.Relevant information for last month follows:
 Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division.
Refer to Oller Corporation.A transfer price based on variable cost will be set at ____ per unit.

Quizplus · Accepted Answer

To determine the transfer price based on variable cost, we need to consider the variable cost per unit of the product, which is $0.20 per fitting. Adding a markup of 225% (i.e., desired profit margin of 70% on variable cost along with an additional 30% markup for the selling division), we get a transfer price of $0.65 per unit. Therefore, choice B is the correct answer.

Oller Corporation Oller Corporation Produces Various Products Used in the Construction