Terrell Corporation produces various products used in the construction industry. The plumbing division produces and sells100,000 copper fittings each month. Relevant information for last month follows:
Total sales (all external) $250,000
Expenses (all on a unit base):
Variable manufacturing $0.50
Fixed manufacturing .25
Variable selling .30
Fixed selling .40
Variable G & A .15
Variable G & A .50
Total $2.10
Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division.
1. Refer to Terrell Corporation. A transfer price based on variable cost will be set at ________ per unit.
a)$0.50 b) $0.65 c) $0.95 d) $1.10
2. Refer to Terrell Corporation. A transfer price based on full production cost would be set at ______ per unit.
a) $0.75 b) $1.45 c) $1.60 d) $2.10
3. Refer to Terrell Corporation. A transfer price based on market price would be set at __________ per unit.
a) $2.10 b) $2.50 c) $1.60 d) $2.25
4. Refer to Terrell Corporation. If the Plumbing Division is operated as an autonomous investment center and its capacity is 100,000 fittings per month, the per-unit transfer price is not likely to be below
a) $0.75 b) $1.60 c) $2.10 d) $2.50
| Answer 1 | |||
| Transfer price based on variable cost will be set at ________ per unit | |||
| Variable manufacturing | $ 0.50 | ||
| Variable selling | $ 0.30 | ||
| Variable G & A | $ 0.15 | ||
| Total Variable cost | $ 0.95 | ||
| Transfer price based on variable cost | $ 0.95 | ||
| Correct Option is C. | $ 0.95 | ||
| Answer 2 | |||
| Transfer price based on full production cost would be set at ______ per unit | |||
| Variable manufacturing | $ 0.50 | ||
| Fixed manufacturing | $ 0.25 | ||
| Full production cost | $ 0.75 | ||
| Transfer price based on Full production cost | $ 0.75 | ||
| Correct Option is A. | $ 0.75 | ||
| Answer 3 | |||
| Transfer price based on market price would be set at __________ per unit | |||
| Total sales (all external) | $ 250,000 | ||
| Divided by: Units Produced | 100,000 | ||
| Market price per unit | $ 2.50 | ||
| Transfer price based on Market price | $ 2.50 | ||
| Correct Option is B. | $ 2.50 | ||
| Answer 4 | |||
| Per-unit transfer price is not likely to be below | |||
| Maximum Capacity per month | 100,000 | ||
| Currently Operating Capacity per month | 100,000 | ||
| If Plumbing Division sold their all units to outside customer at the $ 2.50 then Plumbing Division never want to transfer unit to Bathroom Products Division below the market price of $ 2.50 per unit. | |||
| Market price per unit | $ 2.50 | ||
| Correct Option is D. | $ 2.50 | ||
Terrell Corporation produces various products used in the construction industry. The plumbing division produces and sells100,000...