Materials used by Jefferson Company in producing Division C\'s product are curre
ID: 2465251 • Letter: M
Question
Materials used by Jefferson Company in producing Division C's product are currently purchased fromoutside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. DivisionA 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.
1.How much would Division C's income from operations increase?
A. $0
B. $75,000
C. $12,500
D. $50,000
2.How much would Division A's income from operations increase?
A. $0
B. $75,000
C. $25,000
D. $50,000
3.How much would Jefferson's total income from operations increase?
A. $37,500
B. $100,000
C. $62,500
D. $150,000
Explanation / Answer
Jefferson Company Ans 1(c) Division C Purchase cost from outside $ 10.00 Per unit Inter transfer purchase from Division A $ 9.50 Per unit Saving Per unit $ 0.50 Per unit Number of units purchased from Division A 25000 Units Total Income from operation increases 12,500.00 Ans 2 (c ) Idle Capacity of division A 25000 Units Transfer Price $ 9.50 Per unit Variable cost $ 8.50 Per unit Transfer income $ 1.00 Per unit Total increase income $ 25,000.00 Ans 3 (A) Jefferson company total income from operation increases Division C increase income $ 12,500.00 Division A increase income $ 25,000.00 Total Income from operation increases $ 37,500.00