Economics · Transfer Pricing
Division R is currently manufacturing a product called Ja and is operating at full capacity. Division S currently pays an external supplier $650 for product Kb, but wishes Division R to manufacture and supply Product Kb. Cost details for the two products are shown below. The same grade and quantity of labour and material is used for each product: • Selling price of Ja = $700 • Direct materials = $120 (for both Ja and Kb) • Direct labour = $230 (for both Ja and Kb) • Variable overhead = $80 (for both Ja and Kb) • Apportioned fixed overheads = $60 (Ja), $50 (Kb) What is the minimum transfer price that Division R would be prepared to accept for Product Kb?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1$750
- 2$700✓
- 3$650
- 4$430
Correct answer
$700
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