Seven Years Ago, Jared Singh Formed the Singh Corporation and Began

Essay

Seven years ago, Jared Singh formed the Singh Corporation and began producing computer equipment for home use. Because of the highly technical and competitive nature of the industry, Singh established a research and development division that is responsible for continuous evaluation and updating of critical electronic parts used in all of the corporation's products. The staff of the R&D Division has been very successful, contributing to the corporation's number one ranking in the industry in the United States.
Two years ago, the R&D Division took on the added responsibility of producing all microchip circuit boards for Singh computer equipment. One of its specialties is a graphics dissemination board (GDB). The GDB is a major factor in the quality of the Singh computers. Demand for the GDB has increased significantly in the last year, and the R&D Division has had to increase its production and assembly labor force. Three outside customers want to purchase the GDB for their computer products. To date, the R&D Division has been producing the GDBs only for internal use.
The controller of the R&D Division wants to create a transfer price for GDBs that will be used for all intracompany transfers. The following information has been projected for the next six months:
$\begin{array}{lrr} \text { Costs: } &\\ \text { Direct materials } &\$771,800\\ \text { Direct labor } &796,200\\ \text { Overhead costs } &410,300\\ \text { Costs allocated from corporate office} &988,700\\ \text { } &\\\end{array}$

A profit factor of at least 20 percent must be added to the cost (including costs allocated from the corporate office) of the GDB for internal transfer purposes. The outside customers are willing to pay $45 for the GDB. Demand over the next six months is estimated at 78,000 GDBs for internal use and 22,000 for external customers.
a. Compute the cost of producing and distributing one GDB. Round answers to nearest two decimal places.
b. What should be the transfer price used by the R&D Division? What factors influenced your decision?