Worldwide Inc., is a multinational company with divisions around the world. Division A in the United States purchases a part from Division G in China. There is no outside market for the part because it is used to manufacture another product. The manufacturing cost for the part is $5. Transportation is $1 and commissions are $.5 but do not need to be paid.
What is the transfer price using the cost-plus method?
A)$5.50
B)$6.50
C)$6
D)$5

Question

Quizplus · Accepted Answer

The transfer price using the cost-plus method is the manufacturing cost plus any additional costs that are necessary. Since transportation is necessary, it is included, making the transfer price $5 + $1 = $6. Commissions are not necessary, so they are not included.