Polly Woodside Maritime Division purchases from an outside supplier for $52 per unit. The company's Shore Division, which has excess capacity, makes and sells the same part for external customers at a variable cost of $38 and a selling price of $58. If Shore Division commences sales to Maritime Division it will (1) use the general rule and (2) be able to reduce the variable cost on internal transfers by $4. If external sales are not affected, Shore Division should establish a transfer price of:
A) $34
B) $38
C) $58
D) None of the given answers

Question

Quizplus · Accepted Answer

The general rule for transfer pricing is to set the price at the variable cost of the supplying division. In this case, the variable cost of the Shore Division is $38.

Polly Woodside Maritime Division Purchases from an Outside Supplier for $52