Jefferson Company's total operating income will increase by

A) $37,500
B) $100,000
C) $62,500
D) $150,000

Question

Jefferson Company's total operating income will increase byA) $37,500B) $100,000C) $62,500D) $150,000

Madeline Black · Accepted Answer

Final Answer : A, Explanation :  The transfer price of $9.50 per unit is higher than the variable cost of $8.50 per unit, so Division A will make a profit of $1.00 per unit on the transfer. This will increase Division A's operating income by $25,000 (25,000 units * $1.00 per unit). Division C will save $1.50 per unit on the purchase of materials, which will increase its operating income by $37,500 (25,000 units * $1.50 per unit). Therefore, Jefferson Company's total operating income will increase by $37,500 + $25,000 = $62,500.

Jefferson Company's total operating income will increase by

A) $37,500
B) $100,000
C) $62,500
D) $150,000

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