Q1) Parts Division sells Product A for $14.25 on outside market. Lately market for Product A has slowed down and there is idle capacity in Parts Division. Costs to make Product A as recorded by company's cost accounting system are:
| Direct materials |
$7.25 |
| Direct labor |
$2.25 |
| Variable manufacturing overhead |
$1.50 |
| Fixed manufacturing overhead |
$2.50 |
Assembly Division of same company requires a part which is just like Product A. Assembly Division can select whether to purchase Product A from outside supplier for $14.15 or purchase it internally from Parts Division. Determine the lowest transfer price Parts Division would accept for Product A?
a) $1.50
b) $11.00
c) $13.50
d) $14.25