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:

Reduce Overall Sales Costs

A strategic objective aimed at lowering the total expenses associated with the selling of products or services, enhancing profitability.

Increase Sales Volume

Strategies or actions taken to boost the quantity of products or services sold, often aiming to enhance revenue and market presence.

Segment Rationalization Test

A method of evaluating the viability and profitability of different market segments to determine where to focus marketing and product development efforts.

Relevance Test

An assessment to determine the applicability or importance of information, data, or research findings to a specific context or decision-making process.