Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 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 $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Division 3's income from operations increase?
Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 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 $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much would Division 3's income from operations increase?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Materials used by Square Yard Products Inc. in
producing Division 3's product are currently
purchased from outside suppliers at a cost of $5 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 $3
per unit. A transfer price of $3.20 per unit is
established, and 40,000 units
and 40,000 units of material are
transferred, with no reduction in Division 6's current
sales.
How much would Division 3's income from operations
increase?
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