Current Attempt in Progress

Northern Ltd$\text{'}$s Red Division has capacity to produce $100,000$ components per period. External sales currently account for $70\%$ of its capacity. Another division in the company, Black Division, has requested a transfer of $20,000$ components and is requesting a price of $$34$ per unit. The market price of the component is $$41,$ and Red Division's unit costs are:

Direct materials $$13$

Directlabor $$10$

Variable overhead $$6$

Fixed overhead $$7$

Which of the following statements is true?

Red Division should not make the transfer because it would lose $$3$ on each unit transferred.

Red Division should make the transfer because both its divisional income and its corporate income will increase.

Red Division should not make the transfer because it does not have sufficient capacity.

Although Red Division's income will decrease, it should make the transfer because it is in the best interest of Northern Ltd$.$