Materials Used by Square Yard Products Inc

question 56

Multiple Choice

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales.
How much will Square Yard Products total income from operations increase?

• A) $32,000
• B) $112,000
• C) $80,000
• D) $150,000

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Definitions:

Minerals

Naturally occurring, inorganic solids with a definite chemical composition and a crystalline structure found in the earth.

Earth Layers

The division of the interior of Earth into layers, including the crust, mantle, outer core, and inner core, based on chemical and physical properties.

Water Vapour

The gaseous phase of water present in the atmosphere, instrumental in the greenhouse effect and weather patterns.

Methane

A colorless, odorless flammable gas, CH4, used as a fuel and a significant greenhouse gas.