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

question 78

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 would Division C's income from operations increase?

• A) $0
• B) $75,000
• C) $12,500
• D) $50,000

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Definitions:

Natural Law

A philosophical belief that certain rights or values are inherent by virtue of human nature and can be universally understood through human reason.

Morally Correct

Acting in accordance with what is considered right and good behavior based on ethical principles.

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A contract between two or more nations that outlines the rules and guidelines for trade between them.

NAFTA

The North American Free Trade Agreement, a trilateral trade bloc in North America created by Canada, Mexico, and the United States.