Richardson,Inc Department B Can Purchase the Housing from an Outside Supplier

question 49

Essay

Richardson,Inc.,is in the process of developing a transfer price for the first section of what will eventually be an automatic lawn-cutting device.The housing is made in Department A and is used by Department B in the final assembly operation.Unit costs for the housing are as follows:
$\begin{array}{lr} \text { Cost Categories}& \text {Unit Cost }\\\text { Direct materials } & \$ 8.10 \\\text { Direct labor } & 7.00 \\\text { Variable overhead } & 4.50 \\\text { Fixed overhead } & 4.40 \\\text { Profit markup (30 percent of cost) } & ?\end{array}$
Department B can purchase the housing from an outside supplier at $29.50 per unit.
a. Develop the cost-plus transfer price for the housing.
b. What should the transfer price be? Support your answer.

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