Terrell Corporation
Terrell Corporation produces various products used in the construction industry.The Plumbing Division produces and sells 100,000 copper fittings each month.Relevant information for last month follows:
$\begin{array}{lc}
\text { Total sales(all external) } & \$ 250,00 \
\text { Expenses(all on a urit base): } & \
\text { Variable manufacturing } &\$ 0.50 \
\text { Fixed manufacturing } & .25 \
\text { Variable selling } & .30 \
\text { Fixed selling } & .40 \
\text { Variable G\&A } &.15\
\text { Fixed G\&A } & \underline{.50}\
\text { Total} &\underline{ \$ 2.10}
\end{array}$

Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division.
Refer to Terrell Corporation.A transfer price based on variable cost will be set at ____ per unit.

Question

Terrell Corporation
Terrell Corporation produces various products used in the construction industry.The Plumbing Division produces and sells 100,000 copper fittings each month.Relevant information for last month follows:
$\begin{array}{lc}
\text { Total sales(all external) } & \$ 250,00 \
\text { Expenses(all on a urit base): } & \
\text { Variable manufacturing } &\$ 0.50 \
\text { Fixed manufacturing } & .25 \
\text { Variable selling } & .30 \
\text { Fixed selling } & .40 \
\text { Variable G\&A } &.15\
\text { Fixed G\&A } & \underline{.50}\
\text { Total} &\underline{ \$ 2.10}
\end{array}$

Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division.
Refer to Terrell Corporation.A transfer price based on variable cost will be set at ____ per unit.

Quizplus · Accepted Answer

A transfer price based on variable cost will only consider the variable manufacturing cost, which is $0.50 per unit. Thus, the transfer price will be $0.50 × 10,000 = $5,000. This will be added to the cost of the Bathroom Products Division. The fixed costs are not relevant in this case since they will be incurred whether the transfer takes place or not. Since the question is asking for the price per unit, the answer is $0.50 + $5,000/10,000 = $0.65 per unit, which is option B. Therefore, option B is the best choice.

Terrell Corporation Terrell Corporation Produces Various Products Used in the Construction

Terrell Corporation
Terrell Corporation Produces Various Products Used in the Construction