Materials used by Jefferson Company in producing Division C's product are currently purchased fromoutside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. DivisionA has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales.
1.How much would Division C's income from operations increase?
A. $0
B. $75,000
C. $12,500
D. $50,000
2.How much would Division A's income from operations increase?
A. $0
B. $75,000
C. $25,000
D. $50,000
3.How much would Jefferson's total income from operations increase?
A. $37,500
B. $100,000
C. $62,500
D. $150,000
Answers: 3
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