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

question 161

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 A's income from operations increase?

• A) $0
• B) $75,000
• C) $25,000
• D) $50,000

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Definitions:

Spit

A small point or low ridge of sand or gravel projecting from the shore into a body of water.

Wave-cut Platform

A flat, often wide area at the base of a cliff created by the erosion of waves at the shore.

Estuaries

Coastal bodies of water where fresh water from rivers meets and mixes with salt water from the ocean.

Irregular Coast

A coastline that has a complex shape, often characterized by numerous bays, peninsulas, and inlets.