Tiffany Company Has Two Divisions,Gold and Silver

Multiple Choice

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.How much will Silver save by not purchasing from outside if a transfer price of $22.50 is agreed upon?

A) $225,000
B) $250,000
C) $175,000
D) $125,000