Ruter Company had the following historical accounting data per unit: $\begin{array}{lr}
\text { Direct materials } & \$ 70 \
\text { Direct labour } & 40 \
\text { Variable overhead } & 25 \
\text { Fixed overhead } & 34 \
\text { Variable selling expenses } & 55 \
\text { Fixed selling expenses } & 19
\end{array}$ The units are normally transferred internally from Division X to Division Y.The units also may be sold externally for $210 per unit.The minimum profit level accepted by the company is a markup of 30%.There was no beginning or ending inventories. Suppose Division X uses full cost plus markup.What would be the transfer price?
A) $129.00
B) $136.50
C) $167.00
D) $219.70

Question

Quizplus · Accepted Answer

The full cost per unit is the sum of all costs: $70 (Direct materials) + $40 (Direct labour) + $25 (Variable overhead) + $34 (Fixed overhead) + $55 (Variable selling expenses) + $19 (Fixed selling expenses) = $243. A 30% markup on $243 is $72.90, making the transfer price $243 + $72.90 = $315.90. However, since the external selling price is $210, the transfer price should not exceed this. Therefore, the correct transfer price is $210, but since the options do not match, the closest option considering the markup on full cost is $219.70.

Ruter Company Had the Following Historical Accounting Data Per Unit