Asked by Sonja Knezic on Apr 27, 2024
Verified
Part AR3 costs the Southwestern Division of Luxon Corporation $26 to make-direct materials are $10,direct labor is $4,variable manufacturing overhead is $9,and fixed manufacturing overhead is $3.Southwestern Division sells Part AR3 to other companies for $30.The Northeastern Division of Luxon Corporation can use Part AR3 in one of its products.The Southwestern Division has enough idle capacity to produce all of the units of Part AR3 that the Northeastern Division would require.What is the lowest transfer price at which the Southwestern Division should be willing to sell Part AR3 to the Northeastern Division?
A) $30
B) $26
C) $23
D) $27
E) $21
Transfer Price
The price at which goods and services are sold between divisions within the same company or between controlled or related entities.
Direct Materials
Raw materials that are directly attributable to the product being manufactured and are a significant component of its cost.
Variable Manufacturing Overhead
Costs of manufacturing that vary with the level of production, such as utilities for the production facility and raw materials.
- Master the basics of internal transfer pricing and identify the factors that dictate the establishment of transfer prices.
Verified Answer
Learning Objectives
- Master the basics of internal transfer pricing and identify the factors that dictate the establishment of transfer prices.
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