The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows:
$$\begin{array} { l r }
\text { Direct materals }&\$600 \
\text { Direct labour } & 1,200 \
\text { Variable overhead } & 300 \
\text { Fixed overhead } & 150 \
\text { Market price per unit } & 2,730
\end{array}$$
-Refer to the figure.What is the best transfer price to avoid transfer price problems?
A)$600
B)$1,800
C)$2,100
D)$2,730

Question

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows:
$$\begin{array} { l r } 
\text { Direct materals }&\$600 \
\text { Direct labour } & 1,200 \
\text { Variable overhead } & 300 \
\text { Fixed overhead } & 150 \
\text { Market price per unit } & 2,730
\end{array}$$
-Refer to the figure.What is the best transfer price to avoid transfer price problems?
A)$600
B)$1,800
C)$2,100
D)$2,730

Quizplus · Accepted Answer

The best transfer price to avoid transfer price problems is the market price per unit, which is $2,730. This ensures that the selling division (Engine Division) is fairly compensated for the goods it provides, reflecting the price it could obtain in the open market.

The Engine Division Provides Engines for the Tractor Division of a Company