Ox Co has two divisions, A and B. Division A makes a component for air conditioning units which it can only sell to Division B. It has no other outlet for sales.

Current information relating to Division A is as follows:
Marginal cost per unit                                                        $100
Transfer price of the component                                        $165
Total production and sales of the component each year   2,200 units
Specific fixed costs of Division A per year                         $10,000

Cold Co has offered to sell the component to Division B for $140 per unit. If Division B accepts this offer, Division A will be closed.

If Division B accepts Cold Co’s offer, what will be the impact on profits per year for the group as a whole?

A Increase of $65,000
B Decrease of $78,000
C Decrease of $88,000
D. Increase of $55,000