Question

Medlock Company has two divisions, Wheel and Chassis. The Wheel Division manufactures a wheel assembly that the Chassis Division uses. The variable cost to produce this assembly is $3.00 per unit; full cost is $4.00. The component sells on the open market for $7.00. What will the transfer price be if Medlock uses a pricing rule of variable cost plus 30 percent? (Round your answer to 2 decimal places.) Transfer price

Answer 1

Solution:

The formula for calculating the transfer price using the variable cost plus pricing is

= Variable cost per unit * ( 1 + percentage of mark up )

As per the information given in the question we have

Variable cost per unit = $ 3.00

Percentage of Mark up = 30 % = 0.30

Applying the above information in the formula we have

= $ 3.00 * ( 1 + 0.30 )

= $ 3.00 * 1.30

= $ 3.90

Thus the transfer price will be = $ 3.90