Large, diversified companies often will sell products/components from one division to another division rather than purchase from an outside supplier. Transfer price is the term used to describe the amount one division pays to another division within the same company to purchase a component part.    Therefore, if are the Boat Hull Manufacturing Company and we produce 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 $420 and reported the following manufacturing cost and expenses data: Boat Hull Manufacturing Manufacturing Costs and Variable Expense Report T24 Part   Direct materials   $905   Direct labor   $182   Variable manufacturing overhead   $110   Fixed manufacturing overhead (current production level)   $140   Variable selling expenses (only incurred on sales to outside consumers)   $80     What is the highest transfer price the selling division would receive, and the buying division would pay, for the T24 part? Explain your answer.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Large, diversified companies often will sell products/components from one division to another division rather than purchase from an outside supplier. Transfer price is the term used to describe the amount one division pays to another division within the same company to purchase a component part.   

Therefore, if are the Boat Hull Manufacturing Company and we produce 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 $420 and reported the following manufacturing cost and expenses data:

Boat Hull Manufacturing

Manufacturing Costs and Variable Expense Report

T24 Part

 

Direct materials

 

$905

 

Direct labor

 

$182

 

Variable manufacturing overhead

 

$110

 

Fixed manufacturing overhead (current production level)

 

$140

 

Variable selling expenses (only incurred on sales to outside consumers)

 

$80

 

 

What is the highest transfer price the selling division would receive, and the buying division would pay, for the T24 part? Explain your answer.

 

 

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