The Chasis Division provides frames for the Tractor Division of a company. The standard unit costs for the Chasis Division are as follows: $\begin{array} { l }
\text {Direct materials }&\$800\
\text { Direct labor}&1,500\
\text {Variable overhead }&40\
\text {Fixed overhead }&350\
\text { Market price per unit}&4,575\
\end{array}$
What is the transfer price based on full cost plus a markup of 20 percent?
A)$5,490
B)$4,575
C)$3,240
D)$3,660

Question

The Chasis Division provides frames for the Tractor Division of a company. The standard unit costs for the Chasis Division are as follows: $\begin{array} { l  }
 \text {Direct materials }&\$800\
 \text { Direct labor}&1,500\
 \text {Variable overhead }&40\
 \text {Fixed overhead }&350\
 \text { Market price per unit}&4,575\
\end{array}$
 What is the transfer price based on full cost plus a markup of 20 percent?
A)$5,490
B)$4,575
C)$3,240
D)$3,660

Quizplus · Accepted Answer

The full cost is calculated by adding direct materials, direct labor, variable overhead, and fixed overhead: $800 + $1,500 + $40 + $350 = $2,690. A markup of 20 percent on the full cost is $2,690 * 0.20 = $538. Therefore, the transfer price is $2,690 + $538 = $3,228, which rounds to $3,230, but since this option is not available, the closest provided option is D) $3,660.

The Chasis Division Provides Frames for the Tractor Division of a Company