Answer the following questions using the information below:
Greenlawn Corporation has two divisions, Distribution and Production. The company's primary product is fertilizer. Each division's costs are provided below:
The Distribution Division has been operating at a capacity of 4,000,000 pounds a week and usually purchases 2,000,000 pounds from the Production Division and 2,000,000 pounds from other suppliers at $0.90 per pound.
-What is the transfer price per barrel from the Production Division to the Distribution Division, assuming the method used to place a value on each pound of fertilizer is 160% of variable costs?
A)$0.10
B)$0.22
C)$0.16
D)$0.80

Question

Answer the following questions using the information below:
Greenlawn Corporation has two divisions, Distribution and Production. The company's primary product is fertilizer. Each division's costs are provided below:
  The Distribution Division has been operating at a capacity of 4,000,000 pounds a week and usually purchases 2,000,000 pounds from the Production Division and 2,000,000 pounds from other suppliers at $0.90 per pound.
-What is the transfer price per barrel from the Production Division to the Distribution Division, assuming the method used to place a value on each pound of fertilizer is 160% of variable costs?
A)$0.10 
B)$0.22 
C)$0.16 
D)$0.80

Quizplus · Accepted Answer

To determine the transfer price per pound from Production Division to the Distribution Division, we need to calculate the variable costs per pound and then multiply it by 160%. The variable costs per pound are $0.50 ($1,200,000 ÷ 2,400,000 pounds).

Transfer price per pound = Variable cost per pound × 160% 
Transfer price per pound = $0.50 × 1.6 
Transfer price per pound = $0.80

Therefore, the transfer price per pound from Production Division to the Distribution Division is $0.80.

Answer: C

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