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 variable cost plus 20%.If Bark purchases the widgets from Fern,what will be the transfer price?
A)$72.00
B)$115.20
C)$126.00
D)$210.00

Question

Quizplus · Accepted Answer

The transfer price is calculated as the variable cost plus 20%. Fern's variable cost per widget is $60. Adding 20% to $60 gives a transfer price of $72 ($60 + ($60 * 20%) = $72).