Signature Scents has two divisions: the Cologne Division and the Bottle Division

Question

Signature Scents has two divisions: the Cologne Division and the Bottle Division. The Bottle Division produces containers that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost is $3.80, shipping cost is $0.28, and the external sales price is $4.80. No shipping costs are incurred on sales to the Cologne Division, and the Cologne Division can purchase similar containers in the external market for $4.40.

1.The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be???

Possible answers given:

-$3.80

-$4.40

-$4.52

-$3.90

-$4.80

2.Assume the Bottle Division has no excess capacity and could sell everything it produced externally. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be???

Possible answers given:

-$4.80

-$3.90

-$4.52

-$3.80

-$4.40

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1:

Transfer price would be equal to the variable manufacturing cost of Bottle Division's. Therefore, the transfer price would be 3.8.

Answer is 3.8.

Part 2:

Transfer price would be equal to the difference External Sales Price and Shipping Cost. Therefore, the transfer price would be 4.80 - .28 = 4.52

Answer is 4.52.

Thanks.

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