The Chasis Division provides frames for the Tractor Division of a company. The standard unit costs for the Chasis Division are as follows: What is the transfer price based on full cost plus a markup of 20 percent?
A) $5,490
B) $4,575
C) $3,240
D) $3,660

Question

The Chasis Division provides frames for the Tractor Division of a company. The standard unit costs for the Chasis Division are as follows:  What is the transfer price based on full cost plus a markup of 20 percent?
A) $5,490 
B) $4,575 
C) $3,240 
D) $3,660

Quizplus · Accepted Answer

To calculate the transfer price based on full cost plus a markup of 20 percent, we need to add a markup of 20 percent to the full cost. Full cost is calculated as the sum of direct materials, direct labor, and manufacturing overhead.

Full cost = Direct materials + Direct labor + Manufacturing overhead
Full cost = $1,950 + $1,170 + $540
Full cost = $3,660

Markup = 20% of Full cost
Markup = 0.2 x $3,660
Markup = $732

Transfer price = Full cost + Markup
Transfer price = $3,660 + $732
Transfer price = $4,392

Therefore, the answer is D as it's the only option that matches the calculated transfer price based on full cost plus a markup of 20 percent.

The Chasis Division Provides Frames for the Tractor Division of a Company