Assuming the T-shirt division has excess capacity, if they sell to the sports equipment division, the minimum transfer price that should be charged is:

Shane Products manufactures and sells sportswear and sports equipment. The apparel division incurs the following costs for the production of a single t-shirt when 6,000 shirts are produced each year: Direct materials $1.25 Direct Labor $1.00 Variable Overhead $0.75 Fixed Overhead $0.50 Total Cost $3.50 The company sells the t-shirts to retail stores for $7.50. The sports equipment division is doing a promotion whereby each customer that purchases a tennis racket during the month of May receives a free t-shirt. The sports equipment division would like to purchase these shirts from the t- shirt division Assuming the t-shirt division has excess capacity, if they sell to the sports equipment division, the minimum transfer price that should be charged is: $7.00 $7.50 $3.50 $3.00