The Chasis Division provides frames for the Tractor Division of a company. The standard unit costs for the Chasis Division are as follows: What is the transfer price based on full cost plus a markup of 20 percent?
A) $5,490
B) $4,575
C) $3,240
D) $3,660

Question

The Chasis Division provides frames for the Tractor Division of a company. The standard unit costs for the Chasis Division are as follows:  What is the transfer price based on full cost plus a markup of 20 percent?
A) $5,490 
B) $4,575 
C) $3,240 
D) $3,660

Quizplus · Accepted Answer

To calculate the transfer price based on full cost plus a markup of 20%, we need to first calculate the full cost per unit:

Full cost per unit = Direct materials per unit + Direct labor per unit + Manufacturing overhead per unit
= $1,200 + $480 + $960
= $2,640

Then we add the markup of 20% to get the transfer price:

Transfer price = Full cost per unit + (Markup percentage x Full cost per unit)
= $2,640 + (0.2 x $2,640)
= $3,168

Therefore, the transfer price based on full cost plus a markup of 20% is $3,168 which is closest to $3,660 (option D).

The Chasis Division Provides Frames for the Tractor Division of a Company