Materials Used by Boone Company in Producing Division C's Product

question 64

Multiple Choice

Materials used by Boone Company in producing Division C's product are currently purchased from outside suppliers at a cost of $20 per unit.However, the same materials are available from Division A.Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $17 per unit.A transfer price of $19 per unit is negotiated and 60,000 units of material are transferred, with no reduction in Division A's current sales. How much would Division A's operating income increase?

• A) $0
• B) $180,000
• C) $60,000
• D) $120,000

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Definitions:

Current Practices

The existing methods, procedures, or techniques that are widely used or employed in a particular field or industry.

Exclusive Dealing

An agreement between a supplier and a retailer where the retailer agrees to only purchase goods from the supplier, excluding products from competitors.

Best Efforts

A contractual obligation that requires one party to exert all possible efforts to fulfill the terms of the contract without guaranteeing a specific outcome.

UCC

The Uniform Commercial Code is an extensive collection of regulations that oversee commercial dealings within the United States.