Question
Delta Shoe Ltd. manufactures only one type of shoe and has two divisions, the Sole Division and the Assembly Division. The Sole Division manufactures soles
Delta Shoe Ltd. manufactures only one type of shoe and has two divisions, the Sole Division and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $20. (Ignore changes in inventory.) The per unit fixed costs are based on the production of 60,000 pairs of shoes. Sole's costs per pair of soles are: Direct materials $4 Direct labour $3 Variable overhead $2 Division fixed costs $1 Assembly's costs per completed pair of shoes are: Direct materials $6 Direct labour $2 Variable overhead $1 Division fixed costs $2 What is the transfer price per pair of soles from the Sole Division to the Assembly Division if the method used to place a value on each pair of soles is 180% of variable costs?
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