Question

Boat Hull Manufacturing produces boat parts at the manufacturing facility in Virginia. The managerial accountant reported that Boat Hull Manufacturing manufactures parts to repair the container ships that import products from China. The main part that Boat Hull Manufacturing produces is the T24 part. The Port Department produces the T24 part at the Boat Hull Manufacturing facility in Virginia. The managerial accountant reported that the Deport Department could also produce the T24 part because there is excess capacity at the facility. The managerial accountant reported the current market price of the T24 part is $430 and reported the following manufacturing cost and expenses data: Boat Hull Manufacturing Manufacturing Costs and Variable Expense Report T24 Part Direct materials $850 Direct labor $177 Variable manufacturing overhead $105 Fixed manufacturing overhead (current production level) $200 Variable selling expenses (only incurred on sales to outside consumers) $130 What is the highest transfer price the selling division would receive, and the buying division would pay, for the T24 part? O A. $105 OB. $850 O C. $430 O D. $177

Answer 1

Answer is as follows:

Correct Option: C. $430

This is the highest transfer price between the selling and buying division because it is the current market price.If the selling division charges more than current market price, the buying division prefers to buy in the market. Hence the upper limit for transfer price is current market price.