Materials used by Jefferson Company in producing the Division C's product are currently purchased from outside suppliers at a cost of $10 per unit. However, the same materials are available from Division A. Division A has unused capacity and can produce the materials needed by Division C at a variable cost of $8.50 per unit. A transfer price of $9.50 per unit is negotiated and 25,000 units of material are transferred, with no reduction in Division A's current sales. How much will Jefferson's total income from operations increase?

The Jefferson's total income from operations increase by $25,000

Explanation:

Income from operations : The income from operations is generated from day to day activities such as interest revenue, gains on sale of fixed assets, etc.

Since in the question, the variable cost per unit and transfer price per unit is given through which we can compute the saving cost per unit

In mathematically,

Saving cost per unit = Transfer price per unit - variable cost per unit

= $9.50 - $8.50

= $1.00 per unit

Thus, saving cost per unit is $1.00 per unit

Now multiply this saving cost per unit with transferred units to interpret how much amount is increased

= $1.00 * 25,000 units

= $25,000

The supplier cost is irrelevant for computation.

Hence, the Jefferson's total income from operations increase by $25,000