The fabric division of Sweet Petunia's Baby Gear produces fabric designs to be used by the furniture division. The fabric division sells fabric to outside customers for $800 per bolt. Variable product costs total $575 per bolt, while variable selling and marketing costs are $75 per bolt. What is the transfer price if a market-based transfer policy is in effect?
$575 per bolt
$650 per bolt
$725 per bolt
$800 per bolt
You Answered Correctly!
This answer is correct. Petunia's transfer price policy is based on the market price, which is $800. However, since an internal transfer to the furniture division should avoid the variable selling and marketing costs of $75, then the price used to value the transfer should be $800 − $75 = $725.
Dripolator sells premium-roasted coffee beans. In addition to the roasting division, the company has a cupcake division that sells cupcakes and beverages in retail outlets. The roasting division sells coffee beans at an average price of $5.75 per pound to external customers. Variable product costs for a pound of roasted beans total $4.45 and variable selling and administrative costs are $0.80 per pound. Dripolator's transfer price policy is to transfer at a market-based price. Determine the transfer price.
$4.95 per pound
$4.45 per pound
$5.75 per pound
$5.25 per pound
When one part of an organization transfers a product or service to another part of the organization, the "price" used to value the transfer is called a transfer price. Since Dripolator's policy is to use market prices as the transfer price, the transfer price will be the market price of $5.75 per pound.
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