Reference no: EM132550633

Jerry Containers manufactures Containers for the packaging industry. The Aluminium sheets are produced in the Sheets Division. The sheets are then transferred to the Container Division where the Sheets are further processed, cut and Containers are prepared. Each sheet of Aluminium from the Sheets division will make one Container after further processing. The standard cost of the finished Container is detailed as follows:

                                          Sheets Division                      Container Division

Direct Material                                   $5                                   $7

Direct Labour                                    $6                                   $4

Variable overhead                               $7                                  $9

Total Standard cost                          $18                                  $20

Not including the transfer price for the Aluminium sheet from Sheets division.

The Sheets Division can also sell Aluminium sheets in the market to other companies in the packaging industry. Assume there is spare capacity in the Sheets Division. The sale price for a Aluminium sheet is $26. The Container Division sells its finished Containers for $ 46. The pre-determined fixed overhead rate in the Sheets Division is 125% of the direct labour cost.

Question 1: The transfer price if it is based on standard absorption cost plus a 10% mark-up is:

Select one:

a. $28.05

b. $19.8

c. $26

d. $30.02