Answer the Following Questions Using the Information Below:
the Betashoe

Multiple Choice

Answer the following questions using the information below:
The Betashoe Company manufactures shoes.It has two divisions: the Sole Division and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the manufacturing of the shoes and sells the completed product to retailers.The Sole Division 'sells' pairs of soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory. ) The fixed costs for the Sole Division are assumed to be the same over the range of 40 000-100 000 units.The fixed costs for the Assembly Division are assumed to be $7 per pair of shoes at 100 000 units.
Costs per pair of soles are:
$\begin{array}{ll}\text { Direct materials } & \$ 4 \\\text { Direct labour } & \$ 3 \\\text { Variable overhead } & \$ 2 \\\text { Division fixed costs } & \$ 1\end{array}$

Assembly's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 6 \\ \text { Direct labour } & \$ 2 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 7 \end{array}$
-Calculate and compare the difference in overall corporate net profit between Scenario A and Scenario B if the Assembly Division sells 100 000 pairs of shoes for $60 per pair to customers.
Scenario A: Negotiated transfer price of $15 per pair of soles
Scenario B: Market-based transfer price

A) $100 000 of net profit using Scenario A
B) $500 000 more net profit under Scenario A
C) $500 000 of net profit using Scenario B
D) None of these answers are correct.