in producing Division 3\'s product are currently purchased from outside supplier
ID: 2401871 • Letter: I
Question
in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales.
How much will Square Yard Products total income from operations increase?
a.$32,000
b.$150,000
c.$80,000
d.$112,000
Explanation / Answer
Answer:
Total Square Yard Products income from operations increase = c.$80,000
Working notes for the above answer is as under
Increase in Square Yard Products income from Operation
=Increase in Division 3 income from operation+ Increase in Division 6 income from operation
=((market price - transfer price) x Unit transferred)+ (transfer price-variable cost) x Unit transferred
=((5-3.20) x 40,000 ) + (3.20-3) x40,000
=(1.80 x40,000 ) + (0.20x40,000)
=72000+8000
=$80,000
Square Yard Products total income from operations increase =$80,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.