Toowoomba Limited has many divisions that are evaluated on the basis of ROI. One...
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Accounting
Toowoomba Limited has many divisions that are evaluated on the basis of ROI. One division, Centra, makes boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs the following costs for one box:
Direct materials
$0.35
Direct labour
$0.60
Variable overhead
$0.40
Fixed overhead
$0.13
Total
$1.48
Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives). Assume that Toowoomba mandates that any transfers take place at full manufacturing cost. What would be the transfer price if Centra transferred boxes to Mantra?
$1.00
$1.48
$1.35
Cannot be determined from the information given.
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