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

Understand the concept of cash equivalents and their reporting.

Recognize the treatment of non-cash transactions and significant transactions not affecting cash.

Grasp the calculation and interpretation of cash flow ratios.

Appreciate the relevance of timing and amounts in cash flow analysis.

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Definitions:

Visual Acuity

The degree of detail the eye can discern in an image.

Lanugo

The fine, woolly hair or down on the shoulders, back, sacrum, and earlobes of the unborn child, which may remain for a few weeks after birth.

Prematurely

Occurring or done before the usual or proper time; too early.

Respiratory Function

The process by which the respiratory system exchanges oxygen and carbon dioxide, crucial for sustaining life.