Pautner Company had the following historical accounting data per unit: The units are normally transferred internally from Division A to Division B. The units also may be sold externally for £210 per unit. The minimum profit level accepted by the company is a markup of 30 percent. There were no beginning or ending inventories.
If variable manufacturing costs without a fixed fee are used as the transfer price, Division A's transfer price would be

Question

Quizplus · Accepted Answer

To calculate the variable manufacturing cost without a fixed fee, we need to subtract the variable selling and administrative costs per unit from the external selling price per unit:

Variable manufacturing cost = External selling price - Variable selling and administrative cost

Variable manufacturing cost = £210 - (£12 + £63)

Variable manufacturing cost = £135

To mark up the cost by 30%, we need to multiply the variable manufacturing cost by 1.3:

Transfer price = Variable manufacturing cost x 1.3

Transfer price = £135 x 1.3

Transfer price = £175.50

However, since we want to use variable manufacturing cost as the transfer price, we need to subtract the variable selling and administrative cost per unit from the transfer price:

Transfer price = Variable manufacturing cost - Variable selling and administrative cost

Transfer price = £135 - £30

Transfer price = £105

Therefore, the answer is C) £105 as Division A's transfer price.

Pautner Company Had the Following Historical Accounting Data Per Unit