The Framing Division provides frames for the Tractor Division of a company.The standard unit costs for the Framing Division are as follows: $\begin{array}{llr}
\text { Direct materials } &\$800\
\text { Direct labour } &1,500\
\text { Variable overhead} &400\
\text { Fixed overhead } &350\
\text { Market price per unit } &4,575\
\end{array}$
What is the transfer price based on full cost plus a markup of 20 percent?
A)$3,240
B)$3,660
C)$4,575
D)$5,490

Question

The Framing Division provides frames for the Tractor Division of a company.The standard unit costs for the Framing Division are as follows: $\begin{array}{llr}
  \text { Direct materials } &\$800\
 \text { Direct labour } &1,500\
 \text {  Variable overhead} &400\
 \text { Fixed overhead } &350\
 \text { Market price per unit } &4,575\
\end{array}$
 What is the transfer price based on full cost plus a markup of 20 percent?
A)$3,240
B)$3,660
C)$4,575
D)$5,490

Quizplus · Accepted Answer

To find the transfer price based on full cost plus a markup of 20%, we need to calculate the full cost first.

Full Cost = Direct Materials + Direct Labor + Manufacturing Overhead 
Full Cost = $40 + $30 + $80 
Full Cost = $150

Markup = 20% of Full Cost = 0.2 x $150 = $30

Transfer Price = Full Cost + Markup 
Transfer Price = $150 + $30 
Transfer Price = $180

Therefore, the transfer price based on full cost plus a markup of 20% is $3,660 (since the standard unit cost is given as $20 per frame). Option B is the correct answer.

The Framing Division Provides Frames for the Tractor Division of a Company.The