Ruter Company had the following historical accounting data per unit: The units are normally transferred internally from Division X to Division Y.The units also may be sold externally for $210 per unit.The minimum profit level accepted by the company is a markup of 30%.There was no beginning or ending inventories.
Suppose Division X uses full cost plus markup.What would be the transfer price?
$\begin{array}{lr}
\text { Direct materials } & \$ 70 \
\text { Direct labour } & 40 \
\text { Variable overhead } & 25 \
\text { Fixed overhead } & 34 \
\text { Variable selling expenses } & 55 \
\text { Fixed selling expenses } & 19
\end{array}$
A)$129.00
B)$136.50
C)$167.00
D)$219.70

Question

Quizplus · Accepted Answer

The transfer price using full cost plus markup is calculated by adding all costs (direct materials, direct labor, variable overhead, and fixed overhead) and then applying the markup. The total cost per unit is $70 (direct materials) + $40 (direct labor) + $25 (variable overhead) + $34 (fixed overhead) = $169. To achieve a minimum profit level of 30%, the markup is calculated on the total cost: $169 * 1.30 = $219.70. Selling expenses are not included in the cost calculation for transfer pricing purposes.

Ruter Company Had the Following Historical Accounting Data Per Unit