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

question 40

Multiple Choice

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10 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 $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 Jefferson's total income from operations increase?

• A) $37,500
• B) $100,000
• C) $62,500
• D) $150,000

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