Branded Shoe Company manufactures only one type of shoe and has two divisions, t

Question

Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing Division, which completes the shoe and sells it to retailers. The Stitching Division "sells"shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $42. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Polishing Division are assumed to be $14 per pair at 100,000 units. Stitching's costs per pair of soles are: Direct materials $10 Direct labor $ 8 Variable overhead $ 6 Division fixed costs $ 4 Polishing's costs per completed pair of shoes are: Direct materials $14 Direct labor $ 6 Variable overhead $ 4 Division fixed costs $16 What is the market-based transfer price per pair of shoes from the Stitching Division to the Polishing Division? Select one: a. $20 b. $32 c. $42 d. $52

Explanation / Answer

Correct answer is C as given in the problem that market price for polishing division to purchase is $42.

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