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8090 [49]
3 years ago
11

Darrin’s Auto Northern Division is currently purchasing a part from an outside supplier. The company's Southern Division, which

has no excess capacity, makes and sells this part for external customers at a variable cost of $15 and a selling price of $27. If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $3. On the basis of this information, Southern would establish a transfer price of:
Business
1 answer:
Marina86 [1]3 years ago
5 0

Answer:

Transfer price = $24

Explanation:

As per the data given in the question,

The excess capacity of Company's Southern division is nill therefore for transferring the units the division will have to decrease its external sales.The Loss occurred due to reduction in external sales should be from inter divisional transfer price. Therefore,

Transfer price = variable cost + Loss of contribution

= ($15 - $3) + ($27 - $15)

= $24

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Explanation:

Equivalent unit of production

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Equivalent units are used in the production cost reports for the producing departments of manufacturers using a process costing system. Cost accounting textbooks are likely to present the cost calculations per equivalent unit of production under two cost flow assumptions: weighted-average and FIFO.

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For the sake of this question, we will be determining the <u>equivalent units of production:</u>

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Katyanochek1 [597]

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