Transfer Pricing at Absorption Cost

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Transfer Pricing at Absorption Cost The Injection Molding Division of Universal Sign Company produces molded parts that are sold to the Sign Division. This division uses the parts in constructing signs that are sold to various busi- nesses. The Molding Division contains two operations, injection and finishing. The unit variable cost of materials and labor used in the injection operation is $100. The fixed injection overhead is $800,000 per year. Current production (20,000 units) is at full capacity. The variable cost of labor used in the finishing operation is $16 per part. The fixed overhead in this operation is $340,000 per year. The company uses an absorption-cost transfer price. The price data for each operation presented to the Sign Division by the Molding Division follow. Injection 40 $%140 Fixed overhead cost per unit ($800,000 20,000 units) ' ' . . . . . . . . . . . . . . . . . . Finishing 16 17 Fixed overhead cost per unit ($340,000 20,000 units) . . . . . . . . . . . . . . 33 . . . . . $173 Transfer Pricing at Absorption Cost The Injection Molding Division of Universal Sign Company produces molded parts that are sold to the Sign Division. This division uses the parts in constructing signs that are sold to various busi- nesses. The Molding Division contains two operations, injection and finishing. The unit variable cost of materials and labor used in the injection operation is $100. The fixed injection overhead is $800,000 per year. Current production (20,000 units) is at full capacity. The variable cost of labor used in the finishing operation is $16 per part. The fixed overhead in this operation is $340,000 per year. The company uses an absorption-cost transfer price. The price data for each operation presented to the Sign Division by the Molding Division follow. Injection 40 $%140 Fixed overhead cost per unit ($800,000 20,000 units) ' ' . . . . . . . . . . . . . . . . . . Finishing 16 17 Fixed overhead cost per unit ($340,000 20,000 units) . . . . . . . . . . . . . . 33 . . . . . $173