Merlin Component's Hillside Division Is Currently Operating at 100 Percent

Multiple Choice

Merlin Component's Hillside Division is currently operating at 100 percent capacity (capacity is 100,000 units) . The normal selling price for its wrap film is $12 per case. At current operating levels, fixed costs are $3 per case and variable costs are $7 per case. Another division of Merlin Components would like to buy from the Hillside Division. If this sale is made, $1.20 per case in variable selling and administrative costs can be saved. Calculate the most acceptable transfer price per unit.

A) $10.80
B) $12.00
C) $7.00
D) $5.80