Calculation cost to make a product.
The Parts Division sells Product A for $14.25 on the outside market. Lately the market for Product A has slowed down and there is idle capacity in the Parts Division. The costs to make Product A as recorded by the company's cost accounting system are:
|
Direct materials
|
$7.25
|
|
Direct labor
|
$2.25
|
|
Variable manufacturing overhead
|
$1.50
|
|
Fixed manufacturing overhead
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$2.50
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The Assembly Division of the same company needs a part that is just like Product A. The Assembly Division can choose whether to buy Product A from an outside supplier for $14.15 or buy it internally from the Parts Division. What is the lowest transfer price the Parts Division would accept for Product A?
a) $1.50
b) $11.00
c) $13.50
d) $14.25