Terrell Corporation produces various products used in the construction industry. The plumbing division produces and sells100,000 copper fittings each month. Relevant information for last month follows: Total sales (all external) $250,000
Expenses (all on a unit base):
Variable manufacturing $0.50
Fixed manufacturing .25
Variable selling .30
Fixed selling .40
Variable G & A .15
Variable G & A .50
Total $2.10
Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division.
1. Refer to Terrell Corporation. A transfer price based on variable cost will be set at per unit.
a) $0.50
b) $0.65
c) $0.95
d) $1.10
2. Refer to Terrell Corporation. A transfer price based on full production cost would be set at per unit.
a) $0.75
b) $1.45
c) $1.60
d) $2.10
3. Refer to Terrell Corporation. A transfer price based on market price would be set at per unit.
a) $2.10
b) $2.50
c) $1.60
d) $2.25
4. Refer to Terrell Corporation. If the Plumbing Division is operated as an autonomous investment center and its capacity is 100,000 fittings per month, the per-unit transfer price is not likely to be below
a) $0.75
b) $1.60
c) $2.10
d) $2.50

Terrell Corporation

1. Refer to Terrell Corporation. A transfer price based on variable cost will be set at per unit.

c) $0.95

2. Refer to Terrell Corporation. A transfer price based on full production cost would be set at per unit.

d) $2.10

3. Refer to Terrell Corporation. A transfer price based on market price would be set at per unit.

b) $2.50

4. Refer to Terrell Corporation. If the Plumbing Division is operated as an autonomous investment center and its capacity is 100,000 fittings per month, the per-unit transfer price is not likely to be below

d) $2.50

Explanation:

a) Data and Calculations:

Monthly production and sales units of the plumbing division = 100,000

Total sales (all external) $250,000

Expenses (all on a unit base):

Variable manufacturing   $0.50

Fixed manufacturing            .25

Variable selling                     .30

Fixed selling                         .40

Variable G & A                      .15

Fixed G & A                         .50

Total                                 $2.10

Variable manufacturing     $0.50

Variable selling                       .30

Variable G & A                         .15

Total variable costs (unit)  $0.95

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