Martin Company Currently Manufactures All Component Parts Used in the Manufacturing

Multiple Choice

Martin Company currently manufactures all component parts used in the manufacturing of various hand tools. The Extruding Division produces a steel handle used in three different tools. The budget for these handles is 120,000 units with the following unit cost:
$$\begin{array} { l r } \text { Direct material } & \$ 0.60 \\\text { Direct labor } & 0.40 \\\text { Variable overhead } & 0.10 \\\text { Fixed overhead } & 0.20 \\ \text { Total unit cost } & \$ 1.30 \\\end{array}$$
The Polishing Division purchases 20,000 handles from the Extruding Division and completes the hand tools. An outside supplier, Venture Steel, has offered to supply 20,000 units of the handle to the Polishing Division for $1.25 per unit. The Extruding Division currently has idle capacity that cannot be used.
If Martin Company would like to develop a range of transfer prices, what would be the maximum transfer price that the Polishing Division would be willing to pay the Extruding Division?

A) $1.00.
B) $1.10.
C) $1.25.
D) $1.30.