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Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10.00 per unit. However, the same materials are available with Division A. Division A 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. How much will Division A's income from operations increase? a. $50,000 b. $25,000 c. $0 d. $75,000

Respuesta :

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Answer:

None of the above.

Total Income from operation increase.  12,500.00

Explanation:

  • Purchase cost from outside

$          10.00 Per unit

  • Inter transfer purchase from Division A

$            9.50 Per unit

  • Saving Per unit

$            0.50 Per unit

  • Number of units purchased from Division A

25.000 Units

Total Income from operation increases      12,500.00

Answer:

b.25,000

Explanation:

Saving cost per unit = Transfer price per unit - variable cost per unit

                                 = $9.50 - $8.50

                                 = $1.00 per unit

Thus, saving cost per unit is $1.00 per unit

Now multiply this saving cost per unit with transferred units to interpret how much amount is increased

= $1.00 × 25,000 units

= $25,000

The supplier cost is irrelevant for computation.

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