Transfer pricing Walsdorf Company’s information technology department is develop

Question

Transfer pricing Walsdorf Company’s information technology department is developing a support department transfer price based on minutes of computer time.

For 2013, its expected capacity was 700,000 minutes, and theoretical capacity was 1,000,000 minutes. Costs of the IT department for 2013 were expected to total $665,000.

a. What is the IT transfer price based on expected capacity? Round your answer to the nearest cent. $ per minute

b. What is the IT transfer price based on full capacity? Round your answer to three decimal places. $ per minute

c. Actual operating costs of the IT department for 2013 were $689,400, and actual capacity usage was 730,000 minutes.

What were the total variances from budget if the IT department used a transfer price based on expected capacity? $

On full capacity? $

Explanation / Answer

a.  IT transfer price based on expected capacity:-

   = 665000 / 700000

   = 0.95 Per Minute

b. IT transfer price based on full capacity:-

   = 665000 / 1000000

= 0.665 Per minute

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