Tyler, Inc, is in the process of developing a transfer price for a part produced

Question

Tyler, Inc, is in the process of developing a transfer price for a part produced by Department A and used by other departments in manufacturing various products. Unit costs for the part are as follows:

Direct materials $8.10

Direct labor: $7.00

Variable overhead: $4.50

Fixed overhead: $4.40

Profit markup (30% of cost): ?

Department B can purchase the part from an outside supplier at $29.50 per unit.

A) develop the cost-plus transfer price for the part. ___________

B) What should be the transfer price? __________

Explanation / Answer

A) Statement showing computations Particulars Amount Direct Materials                        8.10 Direct Labour                        7.00 Variable Overhead                        4.50 Fixed Overhead                        4.40 Total Cost                      24.00 Markup @30%                        7.20 Cost plus Transfer Price                      31.20 B) Statement showing computations Particulars Amount Direct Materials                        8.10 Direct Labour                        7.00 Variable Overhead                        4.50 Total Cost                      19.60 Since part is available at $29.50 per unit in outside market therefore transfer price should range between 19.60 to 29.50

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