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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

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918197

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