Question - Elba Division of Haimes Industries manufactures product #54B89. Three-fourths of the production is transferred to the Crete Division of Haimes Industries; The remainder is sold externally for $67 per unit. The following information is available about product #54B89:
Total production annually 1,200,000 units
Variable production costs $40
Variable selling costs (included $4 per unit in advertising cost) $16
Fixed overhead (allocated on the basis of units of production) $1,800,000
Fixed selling costs $2,400,000
a. Determine the transfer price under each of the following methods:
1. Total variable cost
2. Full production cost
3. Total variable production cost plus allocated fixed selling costs
4. Market price
b. What transfer price do you think Elba Division should use to "sell" the units to Crete Division?