The Timberland Lumber Company had the following historicalaccounting data, per 100 board feet, concerning one of its productsin the Sawmill Division:
Finished shelving: | |
Direct materials | $30 |
Direct labor | 16 |
Variable manufacturing overhead | 8 |
Fixed manufacturing overhead | 12 |
The historical data is based on an average volume per period of20,000 board feet. The shelving is normally transferred internallyfrom the Sawmill Division to the Finishing Division. Timberland mayalso sell the shelving externally for $90 per 100 board feet. Thedivisions are taxed at identical rates.
Which of the following transfer pricing methods would lead tothe highest Finishing Division income if 10,000 board feet areproduced and transferred in entirety this period from Sawmill toFinishing?
| | A. Market price |
| | B. All variable costs plus 50% markup. |
| | C. Full absorption costing plus 10% markup |
| | D. None of these methods generates a higher division income thananother. |
