Question

Company E has two divisions, Division A and Division B. Division A is currently buying Component X from an external seller for $13. Division B produces Component X and has excess capacity.

Using the following data, what would the transfer price per unit if Division A purchased Component X from Division B at the full-cost-based transfer price?
Variable cost per unit $6.64
Fixed cost per unit 1.42
Division B sales price of Component X 14.50

Answer 1

To determine the transfer price per unit if Division A purchased Component X from Division B at the full-cost-based transfer price, we need to consider the variable cost per unit, fixed cost per unit, and a profit margin.

Step-by-step explanation:

The transfer price per unit if Division A purchased Component X from Division B at the full-cost-based transfer price can be calculated by considering the total cost of producing Component X in Division B. The total cost per unit includes both variable and fixed costs. The variable cost per unit for Division B is $6.64 and the fixed cost per unit is $1.42. The full-cost-based transfer price would be the sum of the variable cost per unit, the fixed cost per unit, and a profit margin.

The full-cost-based transfer price per unit for Component X, if Division A purchased it from Division B within Company E, can be calculated by adding the variable cost and the fixed cost per unit. Given that the variable cost per unit is $6.64 and the fixed cost per unit is $1.42, the full-cost-based transfer price is $6.64 + $1.42, which equals $8.06 per unit. It's important to note that this price does not include any mark-up and only covers the production costs.

Therefore, the transfer price per unit would be $6.64 + $1.42 + profit margin. Since the question does not provide a specific profit margin, we need more information to calculate the exact transfer price.