(Answered) Question - the brake division of liberty bicycles can

Accounting

Question - The Brake Division of Liberty Bicycles can manufacture 57,500 sets of brakes each year at capacity and currently produces 50,000 sets. The division's variable cost per brake set is $13.40, its fixed cost per set is $2.50, and it sells the finished sets to customers for $21.50 each. Liberty's CEO wants the Brake Division to sell 10,000 brake sets to the firm's Bike Division at a transfer price based on the variable cost per set. Currently, the Bike Division buys its brake sets from another vendor for $18.75 each. Assuming the two divisions proceed with the transfer using this cost-based price, what will happen to Liberty's bottom line?

A: It will increase by $11,500.

B: It will decrease by $7,250.

C: It will increase by $33,250.

D: It will increase by $39,500.

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