Mary Janus is developing a transfer price for the housing section of an automatic pool-cleaning device. The housing for the device is made in Department A. It is then passed on to Department D, where final assembly occurs. Unit costs for the housing are as follows:

Cost Categories Unit Costs

Direct materials ......$5.20

Direct labor ........ 2.30

Variable overhead .... 1.30

Fixed overhead ...... 2.60

Profit markup, 20% of cost .. ?

An outside vendor can supply the housing for $13.00 per unit.

1. Develop a cost-plus transfer price for the housing.

2. What should the transfer price be? Support your answer.