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

question 71

Multiple Choice

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 Boone's total income from operations increase?

• A) $180,000
• B) $240,000
• C) $120,000
• D) $300,000

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Definitions:

Tragedy Commons

The Tragedy of the Commons is an economic theory suggesting that individuals acting in their own self-interest can deplete shared resources, leading to negative outcomes for the whole group.

Fish Population

Refers to the number and varieties of fish within a particular body of water or ecosystem.

Garrett Hardin

An ecologist known for his work on environmental issues and for popularizing the concept of the "tragedy of the commons," which describes the problem of individuals overexploiting a shared resource.

Tragedy of the Commons

A situation in which individual users, acting independently according to their own self-interest, deplete or spoil shared resources through their collective action.