Question

The Engine Division provides diesel engines for the Motor Home Division of a company. The standard unit costs for Engine Division are as follows:

Direct materials $ 600
Direct labor 1,200
Variable overhead 300
Fixed overhead 150 Market price per unit 2,730
What is the best transfer price to avoid transfer price problems?

Answer 1

The best transfer price to avoid transfer price problems is $2,310

Step-by-step explanation:

Transfer Price = Variable cost + Fixed Fee

Variable Cost = Direct Material + Direct labor + Variable Overhead

= 600 + 1,200 + 300

= 2,100

Transfer Price = Variable cost + Fixed Fee

= 2,100 + 210

= $2,310

Therefore, The best transfer price to avoid transfer price problems is $2,310