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 of material are transferred, with no reduction in Division 6's current sales.

How much would Square Yard Products total income from operations increase?


A.$32,000

B.$112,000

C.$80,000

D.$150,000

To calculate the increase in total income from operations, we need to determine the difference in cost between purchasing the materials from outside suppliers and producing them in Division 6.

Currently, the materials are purchased from outside suppliers at a cost of $5 per unit. If Division 6 produces the materials, the variable cost per unit would be $3.

The transfer price for the materials between Division 6 and Division 3 is established at $3.20 per unit. This transfer price is higher than the variable cost per unit of $3 to cover any additional costs or profits.

Given that 40,000 units of material are transferred and there is no reduction in Division 6's current sales, the total income increase can be calculated as follows:

Increase in income = (Transfer price - Variable cost) * Number of units transferred
= ($3.20 - $3) * 40,000
= $0.20 * 40,000
= $8,000

Therefore, the increase in Square Yard Products' total income from operations would be $8,000.

However, none of the options provided matches this calculation. It is possible that there is an error in the options or the data provided.

To calculate the increase in Square Yard Products' total income from operations, we need to determine the difference between the current cost of purchasing materials and the cost of producing materials internally in Division 6.

Currently, Square Yard Products purchases the materials at $5 per unit. If Division 6 produces the materials internally, the variable cost per unit is $3.

The transfer price established is $3.20 per unit, so the difference in cost between purchasing and producing internally is $5 - $3.20 = $1.80 per unit.

Since 40,000 units of material are transferred, the total savings from producing internally would be $1.80 * 40,000 = $72,000.

Therefore, the increase in Square Yard Products' total income from operations would be $72,000.

The correct answer is C. $80,000.

The answer for this question is not here. The answer is $72,000