Gunnison Furniture had the following historical accounting data, per hundred boa
ID: 2521100 • Letter: G
Question
Gunnison Furniture had the following historical accounting data, per hundred board feet, concerning one of its products:
The shelving is normally transferred internally from the Cutting Division to the Finishing Division. It also may be sold externally for $110 per hundred board feet. The minimum profit level accepted by the company is a markup of 20 percent.
If the negotiated price is used, Gunnison Furniture's transfer price should be a
a. maximum of $110.00.
b. minimum of $84.00.
c. maximum of $100.80.
d. minimum of $80.00.
Finished shelving: Direct materials $30 Direct labor 16 Variable overhead 10 Fixed overhead 12 Variable selling expenses 8 Fixed selling expenses 4Explanation / Answer
Answer is a. Maximum of $110.00
Explanation: The market price of the product is $ 110.00at which the finishing division is also been able to get from outside suppliers. Therefore, the purchasing division is not ready to pay for the price higher than the market price i.e. $ 110.00 per unit.
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