Tiffany Company has two divisions, Gold and Silver. Gold produces a unit that Si
ID: 2512373 • Letter: T
Question
Tiffany Company has two divisions, Gold and Silver. Gold produces a unit that Silver could use in its production. Silver currently is purchasing 50,000 units from an outside supplier for $25. Gold is operating at less than full capacity and has variable costs of $13.50 per unit. The full cost to manufacture the unit is $20. Gold currently sells 450,000 units at a selling price of $27. If an internal transfer is made, variable shipping and administrative costs of $1 per unit could be avoided. If the internal transfer is made, what would be the impact on Tiffany Company's overall profits?
choose
1. $625,000 increase
2. $1,125,000 increase
3. $225,000 decrease
4. No change in profits
Explanation / Answer
Answer is $625000
fixed cost will continue to occur even if internal transfer is not made.
Particulars Amt Purchase Price 25 Less: Variable Cost (13.5 - 1) 12.5 Net Benefit (A) 12.5 No of Units (B) 50000 Increase in Profits (A x B) 625000