1. Hock Group has two divisions, Division P and Division Q. Division P manufactures an item that is transferred to Division Q. The item has no external market, and 60,000 units produced are transferred internally each year. The costs of each division are as follows:

Division P Division Q

Variable cost $10 per unit $12 per unit

Fixed costs each year $120,000 $90,000

Head office management decides that a transfer price should be set that provides a profit of $30,000 to Division P. What should the transfer price per unit be?

1. $12.50
2. $10.00
3. $2.50
4. $14