Elite Inc.has many divisions that are evaluated on the basis of return on investment (ROI).One division, Beta, makes boxes.A second division, Lambda, makes chocolates and needs 90,000 boxes per year.Beta incurs the following costs for one box:

Beta has the capacity to make 720,000 boxes per year.Lambda currently buys its boxes from an outside supplier for $2.00 each (the same price that Beta receives).
-Assume that Elite Inc.mandates that any transfers take place at full manufacturing cost. What would be the transfer price if Beta transferred boxes to Lambda?

A) $1.35
B) $1.76
C) $1.00
D) The transfer price cannot be determined from the information given.
E) $0.90

Question

Elite Inc.has many divisions that are evaluated on the basis of return on investment (ROI).One division, Beta, makes boxes.A second division, Lambda, makes chocolates and needs 90,000 boxes per year.Beta incurs the following costs for one box:

Beta has the capacity to make 720,000 boxes per year.Lambda currently buys its boxes from an outside supplier for $2.00 each (the same price that Beta receives). 
-Assume that Elite Inc.mandates that any transfers take place at full manufacturing cost. What would be the transfer price if Beta transferred boxes to Lambda?
 
A) $1.35 
B) $1.76 
C) $1.00 
D) The transfer price cannot be determined from the information given. 
E) $0.90

Quizplus · Accepted Answer

The cost-based transfer price is equal to full cost for producing one box.
Full cost for producing one box = (Direct materials + Direct labor + Variable overhead + Fixed overhead) = ($0.40 + $0.70 + $0.50 + $0.16) = $1.76

Elite Inchas Many Divisions That Are Evaluated on the Basis of of Return