Materials Used by Square Yard Products Inc

Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5.00 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 $3.00 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.​
-Division 3's operating income will increase by

A) $150,000
B) $50,000
C) $32,000
D) $72,000

Correct Answer:

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