Materials used by Aro-Products Inc. in producing Division 3\'sproduct are curren
ID: 2458334 • Letter: M
Question
Materials used by Aro-Products Inc. in producing Division 3'sproduct are currently purchased from outside suppliers at a cost of$15 per unit. However, the same materials are available fromDivision 6. Division 6 has unused capacity and can produce thematerials needed by Division 3 at a variable cost of $12 per unit.A transfer price of $13 per unit is established, and 50,000 unitsof material are transferred with no reduction in Division 6'scurrent sales. How much would Division 6's income from operationsincrease?a. $50,000 b. $150,000 c. $100,000 d. $0 Materials used by Aro-Products Inc. in producing Division 3'sproduct are currently purchased from outside suppliers at a cost of$15 per unit. However, the same materials are available fromDivision 6. Division 6 has unused capacity and can produce thematerials needed by Division 3 at a variable cost of $12 per unit.A transfer price of $13 per unit is established, and 50,000 unitsof material are transferred with no reduction in Division 6'scurrent sales. How much would Division 6's income from operationsincrease?
a. $50,000 b. $150,000 c. $100,000 d. $0
Explanation / Answer
Cost per Unit of material 15.00 Less : TransferPrice 13.00 Contribution perunit produced 2.00 Units of materialtransferred 50,000.00 Increase in income from operations 100,000.00 ( 50,000 * 2 )