Tiffany Company has two divisions,Gold and Silver.Gold produces a unit that Silver could use in its production.Silver currently is purchasing 50,000 units from an outside supplier for $25.Gold is operating at less than full capacity and has variable costs of $13.50 per unit.The full cost to manufacture the unit is $20.Gold currently sells 450,000 units at a selling price of $27.If an internal transfer is made,variable shipping and administrative costs of $1 per unit could be avoided.If the internal transfer is made,what would be the impact on Tiffany Company's overall profits?

Question

Quizplus · Accepted Answer

The internal transfer would save $11.50 per unit ($25 - $13.50 variable cost - $1 avoided cost), leading to a $575,000 increase in profits (50,000 units x $11.50).

Tiffany Company Has Two Divisions,Gold and Silver