Holmes,Inc.has a division that manufactures a component that sells for $165 and has a variable cost of $45.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $24.What is the transfer price if the division is operating at full capacity?
A) $69
B) $189
C) $165
D) $24

Question

Quizplus · Accepted Answer

A) Because the division is operating at full capacity, it has a choice between selling to customers and transferring to another division. Therefore, the transfer price should be the market-based price.