Question

Buzz’s Florida Division is currently purchasing a part from an outside supplier. The company's Georgia Division, which has excess capacity, makes and sells this part for external customers at a variable cost of $27 and a selling price of $39. If Georgia begins sales to Florida, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $4. If sales to outsiders will not be affected, Georgia would establish a transfer price of:A. $23. B. $27. C. $35. D. $39. E.None of the answers is correct.

Answer 1

Answer:

correct option is A. $23

Explanation:

given data

variable cost = $27

selling price = $39

variable cost internal transfers = $4

to find out

Georgia would establish a transfer price

solution

we know that Georgia have excess capacity and sales to outsiders  also not affect here even it transfer to florida

and transfer price is variable cost and reduce variable cost

so here

transfer price = variable cost - internal transfers  

transfer price = $27 - $4

transfer price = $23

so correct option is A. $23