The Mukilteo Division of Snohomish Corp. produces and sells a product to outside
ID: 2550033 • Letter: T
Question
The Mukilteo Division of Snohomish Corp. produces and sells a product to outside and internal customers. Per-unit data collected from its operations include:
Outside Sales Price $640
Direct Materials 105
Direct Labor 250
Fixed overhead 180
If Mukilteo has excess capacity available to meet an internal order, what transfer price should be set?
If Mukilteo is operating at full capacity and selling solely to outside customers, what price should another division pay for Mukilteo’s product?
Outside sales price Direct materials Direct labour Fixed overhead $640 105 250 180Explanation / Answer
If Mukilteo has excess capacity available to meet an internal order, what transfer price should be set?
Ans
When there is an excess capacity to produce for internal transfer the minimum transfer price shall be "Variable Cost"
Transfer price should be = Direct materials+Direct labour = 105+250
$355
If Mukilteo is operating at full capacity and selling solely to outside customers, what price should another division pay for Mukilteo’s product?
Ans
When division does not have excess capacity transfer price shall be the Opportunity cost = "Outside sales price"
Transfer price should be = Outside sale price =$640
$640
If Mukilteo has excess capacity available to meet an internal order, what transfer price should be set?
Ans
When there is an excess capacity to produce for internal transfer the minimum transfer price shall be "Variable Cost"
Transfer price should be = Direct materials+Direct labour = 105+250
$355
If Mukilteo is operating at full capacity and selling solely to outside customers, what price should another division pay for Mukilteo’s product?
Ans
When division does not have excess capacity transfer price shall be the Opportunity cost = "Outside sales price"
Transfer price should be = Outside sale price =$640
$640