The Engine Division provides engines for the Tractor Division of a company.The standard unit costs for the Engine Division are:

- The Engine Division has excess capacity.What is the best transfer price to avoid transfer price problems?

A) $1,350
B) $300
C) $900
D) $2,400

Question

The Engine Division provides engines for the Tractor Division of a company.The standard unit costs for the Engine Division are:

- The Engine Division has excess capacity.What is the best transfer price to avoid transfer price problems?
 
A) $1,350 
B) $300 
C) $900 
D) $2,400

Quizplus · Accepted Answer

SUPPORTING CALCULATIONS:
 As the Engine Division has excess capacity, the best transfer price to avoid transfer price problems = (Direct materials + Direct labor + Variable overhead) = ($700 + $1,300 + $400) = $2,400

The Engine Division Provides Engines for the Tractor Division of a Company.The