The Post Division of the M.T. Woodhead Company produces basic posts which can be

sold to outside customers or sold to the Lamp Division of the M.T. Woodhead

Company. Last Year the Lamp Division bought all of its 25,000 posts from Post at

$1.50 each. The following data are available for last year's activities of the Post

Division:

Capacity in units

..............

300,000 posts

Selling price per post

to outside customers

........

$1.75

Variable costs per post

........

$0.90

Fixed costs, total

.............

$150,000

Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. Further suppose that an outside supplier is willing to provide the Lamp Division with basic posts at P1.45 each. If the Lamp Division had chosen to buy all of its posts from the outside supplier instead of the Post Division, the change in net operating income for the company as a whole would have been:

a. 13,750 decrease

b. 1,000 decrease

c. 1,250 decrease

d. 10,250 increase