Cambridge Products Manufactures and Sells Cat Toys and Cat Beds

Multiple Choice

Cambridge Products manufactures and sells cat toys and cat beds.The Bed Division incurs the following costs for the production of a single cat bed when 5,000 beds are produced each year.
$\begin{array}{lr}\text { Direct materials } & \$ 8.00 \\\text { Direct labor } & 5.50 \\\text { Variable overhead } & 2.50 \\\text { Fixed overhead } & 2.00 \\\text { Total cost } & \$ 18.00 \\\end{array}$
The company sells cat beds to various pet stores for $26.00.The Toy Division is doing a promotion whereby each customer that purchases ten cat toys during the months of January,February,and March will receive a free cat bed.The Toy Division would like to purchase these beds from the Bed Division.
Assuming the Bed Division is at full capacity,what is the optimal transfer price?

A) $ 26.00
B) $13.50
C) $16.00
D) $18.00
E) None of the answer choices is correct.