A company established a branch to sell automobile seat covers. The company purchases these covers and stores them in a warehouse. The covers are then shipped from the warehouse to both the home office and the new branch, FOB (Free On Board) destination. Home office management is responsible for setting the transfer price of the covers charged to the branch. Per-unit costs of the covers are: $90.00purchase price$2.50shipping cost to warehouse$3.00handling cost, including $1 allocated administrative overhead$3.50shipping cost to branch, paid by home office According to the general transfer pricing formula given in the text, the minimum transfer price that home office should charge the branch is: Multiple Choice $92.50. $98.00. $93.50. $99.00. $96.00.

Cost is the monetary value at which a good or service is manufactured for the purpose of production…

Answered: A company established a branch to sell…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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A company established a branch to sell automobile seat covers. The company purchases these covers and stores them in a warehouse. The covers are then shipped from the warehouse to both the home office and the new branch, FOB (Free On Board) destination. Home office management is responsible for setting the transfer price of the covers charged to the branch. Per-unit costs of the covers are:


$	90.00	purchase price
$	2.50	shipping cost to warehouse
$	3.00	handling cost, including $1 allocated administrative overhead
$	3.50	shipping cost to branch, paid by home office

According to the general transfer pricing formula given in the text, the minimum transfer price that home office should charge the branch is:

Multiple Choice

$92.50.
$98.00.
$93.50.
$99.00.
$96.00.

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