Rags-to-Riches Corporation has two divisions, X and Y. Division X sells its product to Division Y. Standard costs for Division X are as follows: $\begin{array}{lr}
\text { Direct materials } & \$ 4 \text { per unit } \
\text { Direct labor } & 2 \text { per unit } \
\text { Variable overhead } & 5 \text { per unit } \
\text { Fixed overhead } & 3 \text { per unit } \
\text { Total } & \$ 14 \text { per unit }
\end{array}$ What is the transfer price for Division X based on standard variable cost plus a markup of 25 percent?
A)$11.00
B)$17.50
C)$13.75
D)$7.50

Question

Quizplus · Accepted Answer

The standard variable cost per unit for Division X is the sum of direct materials, direct labor, and variable overhead, which equals $4 + $2 + $5 = $11. A markup of 25 percent on this amount is $11 * 0.25 = $2.75. Therefore, the transfer price is $11 + $2.75 = $13.75.

Rags-To-Riches Corporation Has Two Divisions, X and Y What Is the Transfer Price for Division X Based on Sells