Tiffany Company has two divisions, Gold and Silver. Gold produces a unit that Si

Question

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?

choose

1. $625,000 increase

2. $1,125,000 increase

3. $225,000 decrease

4. No change in profits

Explanation / Answer

Answer is $625000

fixed cost will continue to occur even if internal transfer is not made.

Particulars Amt Purchase Price 25 Less: Variable Cost (13.5 - 1) 12.5 Net Benefit (A) 12.5 No of Units (B) 50000 Increase in Profits (A x B) 625000

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