Rags-to-Riches Corporation has two divisions, X and Y. Division X sells its product to Division Y. Standard costs for Division X are as follows: What is the transfer price for Division X based on standard variable cost plus a markup of 25 percent?
A) $11.00
B) $17.50
C) $13.75
D) $7.50

Question

Rags-to-Riches Corporation has two divisions, X and Y. Division X sells its product to Division Y. Standard costs for Division X are as follows:  What is the transfer price for Division X based on standard variable cost plus a markup of 25 percent?
A) $11.00 
B) $17.50 
C) $13.75 
D) $7.50

Quizplus · Accepted Answer

The transfer price based on standard variable cost plus a markup of 25 percent would be calculated as follows:
Variable cost per unit: $5.50 + $0.75 + $0.50 = $6.75
Markup: 25% of $6.75 = $1.69
Transfer price = Variable cost + Markup = $6.75 + $1.69 = $8.44
Therefore, the transfer price for Division X based on standard variable cost plus a markup of 25% would be $8.44 per unit.

Rags-To-Riches Corporation Has Two Divisions, X and Y