Question

Genesis Scents has two divisions: the Cologne Division and the Bottle Division. The Bottle Division produces containers that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost is $3.10, shipping cost is $0.21, and the external sales price is $4.10. No shipping costs are incurred on sales to the Cologne Division, and the Cologne Division can purchase similar containers in the external market for $3.70. The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be:

Answer 1

transfer price 3.31

Step-by-step explanation:

the minimun transfer price should be equal to the marginal cost:

In this case: variable manufacturing cost + shipping cost.

variable cost 3.1

shipping cos 0.21

marginal price 3.31 = cost of produce an additional unit = transfer price

there is no additional fixed cost so this should be the transfer price.