Answer the Following Questions Using the Information Below

Multiple Choice

Answer the following questions using the information below:
Calculate the Division operating income for the Artic Air Company which manufactures only one type of air conditioner and has two divisions, the Compressor Division, and the Assembly Division. The Compressor Division manufactures compressors for the Assembly Division, which completes the air conditioner and sells it to retailers. The Compressor Division "sells" compressors to the Assembly Division. The market price for the Assembly Division to purchase a compressor is $38.50. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units. The fixed costs for the Assembly Division are assumed to be $7.50 per unit at 10,000 units.

-What is the transfer price per compressor from the Compressor Division to the Assembly Division if the method used to place a value on each compressor is 150% of variable costs?

A) $40.88
B) $38.50
C) $4.50
D) $36.38