Materials uel by Yard Products Inc. in producing Deï.on 3 s product are currentl
ID: 2521845 • Letter: M
Question
Materials uel by Yard Products Inc. in producing Deï.on 3 s product are currently purchased from outside suppler, at aast of SS-asit ?lowmer, mamah masalalle Diviasion & Divisien $has unused capacity and can prouce the materials needed by Division at a variable cost of $3 per unit.A tranfer price of $s.ao per unit is established, and ao,0oo units of materia are trandferred, wita no reduction in Division 6s current sale the same How much would Square Yard Products total income from operations increase $150,000 b 532.000 o s.000 Od $112000Explanation / Answer
Non of the above is correct
Explanation
situation 1
If square yard produce produces Division 3 then
Material cost=40000*$5=$200000
Variable cost = 40000*$3=$120000
Total =$320000
Situation 2
Division 6 has unused capacity and it has a same materials .it produces division 3 products then
Transfer price = $3.20*40000= $128000
Variable cost =$3*40000= 120000
Total cost = $248000
Square yards products totalcost =$320000
Division 6 total cost = $248000
Difference = $ 72000
Note there is no sales revenue given
So you assumed to compare both division6 and share yard costs
Thank you. .