Figure 12-3Grey Inc Centra Has Capacity to Make 700,000 Boxes Per Year

Multiple Choice

Figure 12-3Grey Inc. has many divisions that are evaluated on the basis of ROI. One division, Centra, makes boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs the following costs for one box:
$\begin{array}{ll}\text { Direct materials } & \$ 0.35 \\\text { Direct labor } & \$ 0.60 \\\text { Variable overhead } & \$ 0.40 \\\text { Fixed overhead } & \$ 0.13 \\\text { Total } & \$ 1.48\end{array}$ Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives) .
-Refer to Figure 12-3. Assume that Grey Inc. mandates that any transfers take place at full manufacturing cost. What would be the transfer price if Centra transferred boxes to Mantra?

A) $1.35
B) $1.48
C) $1.00
D) Cannot be determined from the information given.
E) $0.90