Spice Company Has Two Divisions,Parsley and Sage

question 22

Multiple Choice

Spice Company has two divisions,Parsley and Sage.Parsley produces a unit that Sage could use in its production.Sage currently is purchasing 50,000 units from an outside supplier for $50.Parsley is operating at less than its full capacity of 550,000 and has variable costs of $27 per unit.The full cost to manufacture the unit is $38.Parsley currently sells 450,000 units at a selling price of $54.If an internal transfer is made,variable shipping and administrative costs of $2 per unit could be avoided.What would be the impact on Spice Company's overall profits if the internal transfer were made?

• A)no change in overall profits
• B)$1,250,000 increase in profits
• C)$200,000 decrease in profits
• D)$700,000 increase in profits