The Propeller Division provides propellers for the Plane Division of a company. The standard unit costs for the Propeller Division are as follows: Direct materials $ 890 Direct labor 1,590 Variable overhead 575 Fixed overhead 385 Market price per unit 4,395 The propeller department has excess capacity. What is the best transfer price to avoid transfer price problems?

Transfer price = $3055

Explanation:

given data

Direct materials = $890

Direct labor = 1,590

Variable overhead = 575

Fixed overhead = 385

Market price per unit = 4,395

to find out

best transfer price to avoid transfer price

solution

we know that When transfer or division is excess the capacity

then transfer price will equal to variable cost

so

Transfer price = Direct material + Direct labor + Variable overhead ... 1

put here value we get

Transfer price = 890 + 1590 + 575

Transfer price = $3055