Answer the following questions using the information below:
Calculate the Division operating income for the AlphaShoe Company which manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $40. (Ignore changes in inventory.)The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $14 per pair at 100,000 units.

-What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs?
A)$20
B)$25
C)$26
D)$30

Question

Answer the following questions using the information below:
Calculate the Division operating income for the AlphaShoe Company which manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $40. (Ignore changes in inventory.)The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $14 per pair at 100,000 units.
  
-What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs?
A)$20 
B)$25 
C)$26 
D)$30

Quizplus · Accepted Answer

The full cost per pair of soles is calculated as follows:
Fixed cost + Variable cost = Total cost
At 100,000 units:
Fixed cost for Sole Division = Fixed cost for Assembly Division = $140,000
Variable cost per pair of soles = $8
Total cost per pair of soles = $140,000/100,000 + $8 = $9.40
Transfer price per pair of soles = 125% of full cost = 1.25 x $9.40 = $11.75
Transfer price per pair of shoes = 2 x $11.75 = $23.50

Therefore, the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles is $23.50, which is closest to option B) $25.

As for the best choice(s), it is not clear what decision needs to be made based on the given information, so there is no answer for this part of the question.

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