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. $175,000
B. $250,000
C. $225,000
D. $125,000
Answer: D
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