Materials used by Jefferson Company in producing Division C's product are currently purchased 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 25,000 units of material are transferred, with no reduction in Division A's current sales.
How much will Division A's income from operations increase?
A) $0
B) $75,000
C) $25,000
D) $50,000

Question

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The Answer of Materials used by Jefferson Company in producing Division C's product are currently purchased 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 25,000 units of material are transferred, with no reduction in Division A's current sales.
How much will Division A's income from operations increase?
A) $0
B) $75,000
C) $25,000
D) $50,000

Materials Used by Jefferson Company in Producing Division C's Product