Materials used by the company in producing Division C\'s product are currently p

Question

Materials used by the company in producing Division C's product are currently purchase 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 60,000 units of material are transferred, with no reduction in Division A's current sales. How much would Division A's income from operations increase?

Explanation / Answer

Solution:-

Division A's income from operation increases by $60,000.

Explanation:-

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Particulars Amount Transfer price per unit 9.50 Less variable cost per unit 8.50 Income per unit 1.00 * Total unit transferred 60,000 Operating income $60,000

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