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

question 124

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Materials used by Boone Company in producing Division C's product are currently purchased from outside suppliers at a cost of $20 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 $17 per unit. A transfer price of $19 per unit is negotiated and 60,000 units of material are transferred, with no reduction in Division A's current sales. How much would Division C's income from operations increase?

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Definitions:

Taper Ratio

The ratio describing how much a tapered feature reduces in diameter over a specified length.

Taper Angle

The angle at which a tapered feature decreases in diameter from one part to another.

Undercut

A notch or small cut made in the part of an object, usually to provide clearance or space for other components.

Diameter

A straight line passing from side to side through the center of a body or figure, especially a circle or sphere.

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