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MC Question 1
Perrin Co has two divisions, A and B.
Division A has limited skilled labour and is operating at full capacity making product Y. It has been asked to supply a different product, X, to division B. Division B currently sources this product externally for $700 per unit.
The same grade of materials and labour is used in both products. The cost cards for each product are shown below:
| Product | Y ($)/unit | X ($)/unit |
|---|---|---|
| Selling price | 600 | - |
| Direct materials ($50 per kg) | 200 | 150 |
| Direct labour ($20 per hour) | 80 | 120 |
| Apportioned fixed overheads ($15 per hour) | 60 | 90 |
Using an opportunity cost approach to transfer pricing, what is the minimum transfer price?
A. $270
B. $750
C. $590
D. $840