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 $2, shipping cost is $0.10, and the external sales price is $3. No shipping costs are incurred on sales to the Cologne Division, and the Cologne Division can purchase similar containers in the external market for $2.60.

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:
A. $2.00.
B. $2.10.
C. $2.60.
D. $2.90.
E. $3.00

How did you get your answer?

Explanation / Answer

external sales price 3 - shipping cost is 0.10 = 2.90

so answer is

D $2.90.

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