Reference no: EM13792293
The Durango Lumber Company had the following historical accounting data, per 100 board feet, concerning one of its products in the Sawmill Division:
Finished shelving:
Direct materials $60
Direct labor 32
Variable manufacturing overhead 16
Fixed manufacturing overhead 24
The historical data is based on an average volume per period of 20,000 board feet. The shelving is normally transferred internally from the Sawmill Division to the Finishing Division. Durango may also sell the shelving externally for $180 per 100 board feet. The divisions are taxed at identical rates.
Which of the following transfer pricing methods would lead to the highest Finishing Division income if 10,000 board feet are produced and transferred in entirety this period from Sawmill to Finishing?
Market price
All variable costs plus 50 percent mark-up
Full absorption costing plus 10 percent mark-up
None of these methods generates a higher division income than another.
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