Materials used by Jefferson Company in producing Division C\'s product are curre
ID: 2388925 • Letter: M
Question
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 30,000 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. $90,000
b. $30,000
c. $60,000
d. $0
How much would Division C's income from operations increase?
a. $60,000
b. $90,000
c. $15,000
d. $0
this one i understand - - -
How much would Jefferson's total income from operations increase?
a. $120,000
b. $150,000
c. $60,000
d. $45,000 ....it D...
Plz help with the rest
Explanation / Answer
How much would Division A's income from operations increase?
a. $90,000
b. $30,000
c. $60,000
d. $0
How much would Division C's income from operations increase?
a. $60,000
b. $90,000
c. $15,000
d. $0
(A) INCOME FROM OPERATIONS=TRANSFER PRICE-VARIABLE COST=9.5-8.5=$1
UNITS=30000*1=$30000
(B)SAVINGS IN COST=10-9.5=$0.5
SO INCOME WILL INCREASE BY 30000*0.5=$15000