What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs

ACCOUNTING

Multiple Choice

Calculate the Division operating income for the BetaShoe Company which manufacturers only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $20. (Ignore changes in inventory.) The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $7 per pair at 100,000 units.


Sole's costs per pair of soles are:

Direct materials $4

Direct labor $3

Variable overhead $2

Division fixed costs $1


Assembly's costs per completed pair of shoes are:

Direct materials $6

Direct labor $2

Variable overhead $1

Division fixed costs $7


What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs?

a. $10

b. $12.50

c. $13

d. $15

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