Use the following information for the next 2 questions.
The Machining Division has a capacity of 2,000 units. Its sales and cost data are:
-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

Use the following information for the next 2 questions.
The Machining Division has a capacity of 2,000 units. Its sales and cost data are: 
-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 cover the variable costs and any opportunity costs. The variable administrative cost for the Assembly Division is $2/unit. Assuming the Machining Division's cost structure allows for a transfer price of $73.67, this would be the appropriate price considering the reduced administrative cost.

Use the Following Information for the Next 2 Questions