Transfer Pricing Gold Hill Mining Company mines quartz rock at a site in the Boise Basin and then crushes the quartz rock to obtain the gold.
Following is information relative to the operation for the month of July 2013:
The operation mined 10,000 cubic yards of rock.
There is a market for the rock before crushing.
Mining Activities and Crushing Operation prices are below:
Market Price Per cubic yard - Mining: $10 Crushing $50
Variable cost per cubic yard - Mining $5 Crushing $10
Fixed cost per cubic yard - Mining $2 Crushing $20
Required:
1. Compute the transfer price using full cost and calculate the operating income for each operation.
2. Compute the transfer price using variable cost and calculate the operating income for each operation.