Corrugated, Inc. has many divisions that are evaluated on the basis of ROI. One division, the Box Division, makes boxes. The Candy Division makes candy and needs 50,000 boxes per year. The Box Division incurs the following costs for one box:
The Box Division has capacity to make 500,000 boxes per year. The Candy Division currently buys its boxes from an outside supplier for $1.40 each (the same price that the Box Division receives).
$$\begin{array} { l r }
\text { Direct materials } & \$ 0.20 \
\text { Direct labour } & 0.70 \
\text { Variable overhead } & 0.10 \
\text { Fixed overhead } & 0.23 \
\text { Total } & \$ 1.23
\end{array}$$
-Refer to the Figure.Assume that Corrugated,Inc.mandates that any transfers take place at full manufacturing cost.What would be the transfer price if the Box Division transferred boxes to the Candy Division?
A)$0.90
B)$1.00
C)$1.23
D)$1.40

Question

Corrugated, Inc. has many divisions that are evaluated on the basis of ROI. One division, the Box Division, makes boxes. The Candy Division makes candy and needs 50,000 boxes per year. The Box Division incurs the following costs for one box:
The Box Division has capacity to make 500,000 boxes per year. The Candy Division currently buys its boxes from an outside supplier for $1.40 each (the same price that the Box Division receives).
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 0.20 \
\text { Direct labour } & 0.70 \
\text { Variable overhead } & 0.10 \
\text { Fixed overhead } & 0.23 \
\text { Total } & \$ 1.23
\end{array}$$
-Refer to the Figure.Assume that Corrugated,Inc.mandates that any transfers take place at full manufacturing cost.What would be the transfer price if the Box Division transferred boxes to the Candy Division?
A)$0.90
B)$1.00
C)$1.23
D)$1.40

Quizplus · Accepted Answer

The full manufacturing cost per box is the sum of direct materials, direct labor, variable overhead, and fixed overhead, which equals $0.20 + $0.70 + $0.10 + $0.23 = $1.23. Therefore, if the transfer is mandated to take place at full manufacturing cost, the transfer price would be $1.23.

Corrugated, Inc -Refer to the Figure