Swan Company has two divisions,Hill and Paradise.Hill produces a unit that Paradise could use in its production.Paradise currently is purchasing 5,000 units from an outside supplier for $56.Hill is operating at less than full capacity and has variable costs of $30.80 per unit.The full cost to manufacture the unit is $43.40.Hill currently sells 450,000 units at a selling price of $61.60.How much profit will Hill receive from the transfer if a transfer price of $42 is agreed upon?
A)$7,000 loss
B)$98,000 loss
C)$35,000 profit
D)$56,000 profit

Question

Quizplus · Accepted Answer

Hill will receive a profit of $56,000 from the transfer. The transfer price is $42, and the variable cost is $30.80, resulting in a profit of $11.20 per unit. For 5,000 units, this results in a total profit of $56,000 (5,000 units * $11.20 profit per unit).

Swan Company Has Two Divisions,Hill and Paradise