Find the lowest transfer price

Assignment Help Financial Accounting

Reference no: EM1311128

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	$2.50

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

Reference no: EM1311128

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