The Machining Division is currently operating at capacity (2,000 units). Its sales and cost data are: $$\begin{array} { l r }
\text { Selling price per unit } & \$ 100 \
\text { Variable manufacturing costs per unit } & \$ 25 \
\text { Variable administrative costs per unit } & \$ 5 \
\text { Total fixed manufacturing overhead } & \$ 20,000 \
\text { Total fixed administrative costs } & \$ 5,000
\end{array}$$ If the Assembly Division is currently buying from an outside supplier at $98 per unit, what will be the effect on overall company profits if internal sales of 2000 units from Machining to Assembly take place at the optimum transfer price?
A) $7,000 increase
B) $4,000 decrease
C) $300 increase
D) There is no effect

Question

The Machining Division is currently operating at capacity (2,000 units). Its sales and cost data are: $$\begin{array} { l r } 
\text { Selling price per unit } & \$ 100 \
\text { Variable manufacturing costs per unit } & \$ 25 \
\text { Variable administrative costs per unit } & \$ 5 \
\text { Total fixed manufacturing overhead } & \$ 20,000 \
\text { Total fixed administrative costs } & \$ 5,000
\end{array}$$ If the Assembly Division is currently buying from an outside supplier at $98 per unit, what will be the effect on overall company profits if internal sales of 2000 units from Machining to Assembly take place at the optimum transfer price?
A) $7,000 increase
B) $4,000 decrease
C) $300 increase
D) There is no effect

Quizplus · Accepted Answer

The Answer of The Machining Division is currently operating at capacity (2,000 units). Its sales and cost data are: $$\begin{array} { l r } 
\text { Selling price per unit } & \$ 100 \
\text { Variable manufacturing costs per unit } & \$ 25 \
\text { Variable administrative costs per unit } & \$ 5 \
\text { Total fixed manufacturing overhead } & \$ 20,000 \
\text { Total fixed administrative costs } & \$ 5,000
\end{array}$$ If the Assembly Division is currently buying from an outside supplier at $98 per unit, what will be the effect on overall company profits if internal sales of 2000 units from Machining to Assembly take place at the optimum transfer price?
A) $7,000 increase
B) $4,000 decrease
C) $300 increase
D) There is no effect

The Machining Division Is Currently Operating at Capacity (2,000 Units)