The Machining Division has a capacity of 2,000 units. Its sales and cost data are: $$\begin{array} { l r }
\text { Selling price per unit } & \$ 100 \
\text { Variable manufacturing costs per unit } & \$ 25 \
\text { Variable administrative costs per unit } & \$ 5 \
\text { Total fixed manufacturing overhead } & \$ 20,000 \
\text { Total fixed administrative costs } & \$ 5,000
\end{array}$$ The Machining Division is currently selling 1,900 units to outside customers, and the Assembly Division wants to purchase 300 units from Machining. If the transaction takes place, the variable administrative costs per unit on the units transferred to Assembly will be $2/unit, not $5/unit. What should be the transfer price?
A) $73.67
B) $76.67
C) $97.00
D) $100.00

Question

The Machining Division has a capacity of 2,000 units. Its sales and cost data are: $$\begin{array} { l r } 
\text { Selling price per unit } & \$ 100 \
\text { Variable manufacturing costs per unit } & \$ 25 \
\text { Variable administrative costs per unit } & \$ 5 \
\text { Total fixed manufacturing overhead } & \$ 20,000 \
\text { Total fixed administrative costs } & \$ 5,000
\end{array}$$ The Machining Division is currently selling 1,900 units to outside customers, and the Assembly Division wants to purchase 300 units from Machining. If the transaction takes place, the variable administrative costs per unit on the units transferred to Assembly will be $2/unit, not $5/unit. What should be the transfer price?
A) $73.67
B) $76.67
C) $97.00
D) $100.00

Quizplus · Accepted Answer

The transfer price should be equal to the variable manufacturing cost per unit plus the variable administrative cost per unit. In this case, the variable manufacturing cost per unit is $25 and the variable administrative cost per unit is $2. Therefore, the transfer price should be $25 + $2 = $27.

The Machining Division Has a Capacity of 2,000 Units The Machining Division Is Currently Selling 1,900 Units to Outside