Materials used by Beta-Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $15 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 $12 per unit. A transfer price of $13 per unit is established, and 50,000 units of material are transferred with no reduction in Division 6's current sales. How much would Beta-Products total income from operations increase?
A) $50,000
B) $150,000
C) $100,000
D) $0

Question

Quizplus · Accepted Answer

The increase in total income from operations is calculated by the difference in cost per unit when Division 3 purchases from Division 6 instead of outside suppliers. The cost savings per unit is $15 - $13 = $2. For 50,000 units, the total increase in income is 50,000 units * $2 = $100,000.

Materials Used by Beta-Products Inc