The Component Division of Sharp Ware Products Produces Blades for Knives

Multiple Choice

The Component Division of Sharp Ware Products produces blades for knives with the following characteristics: $$\begin{array} { l r } \text { Annual capacity- number of knives } & 60,000 \\\text { Selling price per unit } & \$ 7.00 \\\text { Variable cost per unit } & \$ 3.80 \\\text { Fixed cost per unit } & \$ 1.60\end{array}$$ The Hunting Division within the same company would like to buy its required supply of blades from the Component Division. Currently, the Hunting Division purchases the blades it uses to manufacture hunting knives from an outside supplier for $5.80 each. If the Component Division sells to the Hunting Division, it can save $0.70 per blade. The Component Division is currently operating at capacity and selling all its production outside the company. If the Component Division decides to sell to the Hunting Division, what is the transfer price?

A) $6.30
B) $7.00
C) $3.80
D) $3.10