Richardson, Inc Department B Can Purchase the Housing from an Outside Supplier

Essay

Richardson, Inc., is in the process of developing a transfer price for the first section of what will eventually be an automatic lawn-cutting device. The housing is made in Department A and is used by Department B in the final assembly operation. Unit costs for the housing are as follows:
$\begin{array}{|l|l|}\hline \text { Cost Categories } & \text { Unit Cost } \\\hline \text { Direct materials } & \$ 8.10 \\\hline \text { Direct labor } & 7.00 \\\hline \text { Variable overhead } & 4.50 \\\hline \text { Fixed overhead } & 4.40 \\\hline \text { Profitmarkm }(30 \text { percent of cost }) & ?\\\hline\end{array}$ Department B can purchase the housing from an outside supplier at $29.50 per unit.
a. Develop the cost-plus transfer price for the housing.
b. What should the transfer price be? Support your answer.