Question 1
The costs used in cost-based transfer prices ________.
◦ are actual costs
◦ are budgeted costs
◦ can either be actual or budgeted costs
◦ are lower than the market-based transfer prices
Question 2
Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high-end watches. Each division's costs are provided below:
| Manufacturing: | Variable costs per unit | $1.87 |
| | Fixed costs per unit | $7.29 |
| Distribution: | Variable costs per unit | $1.40 |
| | Fixed costs per unit | $0.60 |
The Distribution Division has been operating at a capacity of 4,009,000 units a week and usually purchases 2,004,500 units from the Manufacturing Division and 2,004,500 units from other suppliers at $10.00 per unit.
What is the transfer price per watch from the Manufacturing Division to the Distribution Division, assuming the method used to place a value on each watch is 170% of variable costs?
◦ $1.87
◦ $3.18
◦ $3.19
◦ $8.13
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