Warner Company produces flash drives.The Custom division would like to buy 1,000,000 units from the Thumb Drive division, which currently has sufficient excess capacity.The units are normally sold for $9.99.The Thumb Drive division's variable production cost per unit is $2.10, variable selling and administrative expenses are $0.80 and fixed cost per unit are $1.65.The drives could be purchased from another company for $9.75.Both the Thumb Drive and the Custom divisions are operated as profit centers.If the company choses to use a cost-plus-based transfer price based on variable cost for the drives, what transfer price would the company use assuming a 50% markup?

Question

Quizplus · Accepted Answer

The correct transfer price would be $4.35, which is the variable cost of $2.10 plus a 50% markup of $1.05.

Warner Company Produces Flash Drives