A company established a branch to sell automobile seat covers. The company purchases these covers and stores them in a warehouse. The covers are then shipped from the warehouse to both the home office and the new branch, FOB (Free On Board) destination. Home office management is responsible for setting the transfer price of the covers charged to the branch. Per-unit costs of the covers are:$$\begin{array} { | r | l | }
\hline \$ 60.00 & \text { purchase price } \
\hline \$ 2.50 & \text { shipping cost to warehouse } \
\hline \$ 3.00 & \text { handling cost, including } \$ 1 \text { allocated administrative overhead } \
\hline \$ 3.50 & \text { shipping cost to branch, paid by home office } \
\hline
\end{array}$$ According to the general transfer-pricing formula given in the text, the minimum transfer price that home office should charge the branch is:

Question

A company established a branch to sell automobile seat covers. The company purchases these covers and stores them in a warehouse. The covers are then shipped from the warehouse to both the home office and the new branch, FOB (Free On Board) destination. Home office management is responsible for setting the transfer price of the covers charged to the branch. Per-unit costs of the covers are:$$\begin{array} { | r | l | } 
\hline \$ 60.00 & \text { purchase price } \
\hline \$ 2.50 & \text { shipping cost to warehouse } \
\hline \$ 3.00 & \text { handling cost, including } \$ 1 \text { allocated administrative overhead } \
\hline \$ 3.50 & \text { shipping cost to branch, paid by home office } \
\hline
\end{array}$$ According to the general transfer-pricing formula given in the text, the minimum transfer price that home office should charge the branch is:

Quizplus · Accepted Answer

The Answer of A company established a branch to sell automobile seat covers. The company purchases these covers and stores them in a warehouse. The covers are then shipped from the warehouse to both the home office and the new branch, FOB (Free On Board) destination. Home office management is responsible for setting the transfer price of the covers charged to the branch. Per-unit costs of the covers are:$$\begin{array} { | r | l | } 
\hline \$ 60.00 & \text { purchase price } \
\hline \$ 2.50 & \text { shipping cost to warehouse } \
\hline \$ 3.00 & \text { handling cost, including } \$ 1 \text { allocated administrative overhead } \
\hline \$ 3.50 & \text { shipping cost to branch, paid by home office } \
\hline
\end{array}$$ According to the general transfer-pricing formula given in the text, the minimum transfer price that home office should charge the branch is:

A Company Established a Branch to Sell Automobile Seat Covers