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

Materials used by Jefferson Company in producing Division C's product are currently purchased from outside suppliers at a cost of $10.00 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.​
-Jefferson Company's total operating income will increase by

A) $37,500
B) $100,000
C) $62,500
D) $150,000

Correct Answer:

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