The Gold Coast Division of Vallance Ltd produces and sells a product to outside and internal customers. Per-unit data collected from its operations include: If the Gold Coast division is operating at full capacity and selling solely to outside customers, what price should another division pay for Gold Coast's product?
A) $285
B) $625
C) $640
D) $480

Question

The Gold Coast Division of Vallance Ltd produces and sells a product to outside and internal customers. Per-unit data collected from its operations include:  If the Gold Coast division is operating at full capacity and selling solely to outside customers, what price should another division pay for Gold Coast's product?
A) $285 
B) $625 
C) $640 
D) $480

Quizplus · Accepted Answer

To determine the transfer price for Gold Coast's product, we need to find its full cost per unit.

Full cost per unit = Direct materials + Direct labor + Manufacturing overhead + Selling and administrative expenses

= $300 + $80 + ($120 + $40) + ($55 + $20)

= $615

Since the Gold Coast division is operating at full capacity and selling solely to external customers, the transfer price should be based on the market price of the product, which is $640 per unit. Therefore, the best choice is C).

The Gold Coast Division of Vallance Ltd Produces and Sells