[The following information applies to the questions displayed below.] Illinois Metallurgy Corporation has two divisions. The...
[The following information applies to the questions
displayed below.]
Illinois Metallurgy Corporation has two divisions. The
Fabrication Division transfers partially completed components to
the Assembly Division at a predetermined transfer price. The
Fabrication Division’s standard variable production cost per unit
is $500. The division has no excess capacity, and it could sell all
of its components to outside buyers at $670 per unit in a perfectly
competitive market.
Determine a transfer price using the general rule.
|
What would be the transfer price if the Fabrication Division had
excess capacity?
|
Homework Answers
1. Transfer price = Cost Outlay – Opportunity Cost = $500 + ($670 - $500) = $670
2. Transfer price = Cost Outlay – Opportunity Cost = $500 + $0 = $500
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