Figure 4 the Simonds Division Produces a Component That Is Used by Used

Figure 4
The Simonds Division produces a component that is used by the Allen Division. The cost of manufacturing the component is as follows:
^aBased on a practical volume of 400,000 components
Other costs incurred by the Simonds Division are as follows:
The component usually sells for £35 in the external market. The Simonds Division is capable of producing 500,000 components per year; however, only 400,000 components are expected to be sold next year. The variable selling expenses are avoidable if the component is sold internally.
The Allen Division has been buying the same component from an external supplier for £34 each. The Allen Division expects to use 50,000 units of the component next year. The manager of the Allen Division has offered to buy 50,000 units from the Simonds Division for £22.50 each.
-Refer to Figure 4. The effect on firmwide income if 50,000 components are transferred internally at £22.50 each instead of purchased from an external supplier at £34 per unit would be a

A) £700,000 increase
B) £700,000 decrease
C) £575,000 increase
D) £575,000 decrease

Correct Answer:

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