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 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 full cost of producing a widget by Fern is $96 ($60 variable cost + $36 fixed cost). Evergreen's policy is to sell it at full cost plus 20%, which is ($96 x 1.2) = $115.20. Therefore, the transfer price for Bark to purchase widgets from Fern would be $115.20.