Question

The COB Division of Northern Corp. produces and sells a product to both external customers and other Northern divisions. Per-unit data collected from COB's operations include: Outside sales price $800 Direct materials 350 Direct labour 75 Fixed overhead 180 If COB has excess capacity available to fulfill an inter-company order, what transfer price should be set

Answer 1

Answer:

$425

Explanation:

Data provided as per the question

Direct material = $350

Direct labor = $75

The computation of transfer price should be set is shown below:-

Transfer price should be = Direct materials + Direct labor

= $350 + $75

= $425

Note :- The minimum transfer price shall be "Variable Rate" if there is an excess capacity to produce for internal transfer.