The Engine Division provides engines for the Truck Division of a company. The standard unit costs for the Engine Division are as follows: $\begin{array} { l }
\text {Direct materials }&\$600\
\text { Direct labor}&1,200\
\text {Variable overhead }&300\
\text {Fixed overhead }&150\
\text { Market price per unit}&2,730\
\end{array}$
What is the transfer price based on full cost plus a markup of 30 percent?
A)$585
B)$2,925
C)$2,760
D)$2,730

Question

The Engine Division provides engines for the Truck Division of a company. The standard unit costs for the Engine Division are as follows: $\begin{array} { l  }
 \text {Direct materials }&\$600\
 \text { Direct labor}&1,200\
 \text {Variable overhead }&300\
 \text {Fixed overhead }&150\
 \text { Market price per unit}&2,730\
\end{array}$
 What is the transfer price based on full cost plus a markup of 30 percent?
A)$585
B)$2,925
C)$2,760
D)$2,730

Quizplus · Accepted Answer

The full cost is calculated by adding direct materials, direct labor, variable overhead, and fixed overhead: $600 + $1,200 + $300 + $150 = $2,250. A markup of 30 percent on the full cost is $2,250 * 0.30 = $675. Therefore, the transfer price is $2,250 + $675 = $2,925.

The Engine Division Provides Engines for the Truck Division of a Company