Wrightsville Beach Company Produces Ice Packs and Various Sizes of Cooler

Multiple Choice

Wrightsville Beach Company produces ice packs and various sizes of cooler bags. The Lunch Box division would like to buy 125,000 units from the Ice Pack division, which currently has excess capacity of 250,000 units. The ice packs are normally sold for $1.65. The Ice Pack division’s variable cost per pack is $.95 and fixed cost per pack are $.30. The ice packs could be purchased from another company for $1.75. Both the Ice Pack and the Lunch Box divisions are operated as profit centers. If Wrightsville Beach Company choses to use a cost-plus-based transfer price based on variable cost for the ice packs, what transfer price would the company use assuming a 20% markup?

A) $1.14
B) $1.25
C) $1.65
D) $1.75