The Engine Division provides diesel engines for the Motor Home Division of a company. The standard unit costs for Engine Division are as follows:

Direct materials $ 600

Direct labor 1,200

Variable overhead 300

Fixed overhead 150 Market price per unit 2,730

What is the best transfer price to avoid transfer price problems?

The best transfer price to avoid transfer price problems is $2,310

Explanation:

Transfer Price = Variable cost + Fixed Fee

Variable Cost = Direct Material + Direct labor + Variable Overhead

= 600 + 1,200 + 300

= 2,100

Transfer Price = Variable cost + Fixed Fee

= 2,100 + 210

= $2,310

Therefore, The best transfer price to avoid transfer price problems is $2,310