SkyWheels can acquire comparable bags externally for $160 each. Give the entries for each division…

(Transfer pricing journal entries) Worldly Traveler’s Roll-Em-On Division makes computer bags. The bags are sold to another internal division, SkyWheels, for inclusion in a luggage set and to external buyers. During the month just ended, SkyWheels acquired 4,000 bags from the Roll-Em-On Division, whose standard unit costs follow.

Direct material

$40

Direct labor

12

Variable factory overhead

16

Fixed factory overhead

24

Variable selling expense

8

Fixed selling and administrative expense

12

SkyWheels can acquire comparable bags externally for $160 each. Give the entries for each division and for Roll-Em-On (assuming that no bags acquired by SkyWheels have been sold) for the past month if the transfer is to be recorded

a. at SkyWheels’ external purchase price and no selling expenses were incurred on, or allocated to, internal transfers.

b. at a negotiated price of total variable cost plus 15 percent of full production cost.

c. by Roll-Em-On Division at SkyWheels’ external price, and by SkyWheels at Roll-Em-On’s variable production cost.

d. at Roll-Em-On’s absorption cost.

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