The Engine Division provides diesel engines for the Motor Home Division of a company. The standard unit costs for Engine Division are as follows: $\begin{array}{lr}
\text { Direct materials } & \$ 600 \
\text { Direct labor } & 1,200 \
\text { Variable overhead } & 300 \
\text { Fixed overhead } & 150 \
\text { Market price per unit } & 2,730
\end{array}$ What is the best transfer price to avoid transfer price problems?
A)$2,100
B)$600
C)$1,800
D)$2,730

Question

Quizplus · Accepted Answer

The best transfer price to avoid transfer price problems is the market price per unit, which is $2,730. This ensures that the selling division (Engine Division) is fairly compensated for its products, and the buying division (Motor Home Division) pays a price that reflects the external market value, promoting fairness and efficiency within the company.

The Engine Division Provides Diesel Engines for the Motor Home