Evergreen Corp.has two divisions,Fern and Bark.Fern produces a widget that Bark could use in the production of units that cost $175 in variable costs,plus the cost of the widget,to manufacture.Fern's variable costs are $60 per widget,and fixed manufacturing costs are applied at a rate of $36 per widget.Widgets sell on the open market for $105 each.Evergreen's policy is that internal transfers will be made at full cost.If Bark purchases the widgets from Fern,what will be the transfer price?
A)$60
B)$96
C)$105
D)$175

Question

Quizplus · Accepted Answer

The transfer price should include Fern's variable costs ($60) and a portion of Fern's fixed manufacturing costs ($36) since those costs were incurred to produce the widget. Therefore, the full cost of each widget is $96. This is the transfer price that Bark should be charged if they purchase widgets from Fern. Purchasing the widgets from the open market would be cheaper for Bark, as they sell for $105 on the market.