The brake division of Liberty Bicycles can manufacture 57,500 sets of brakes each year at capacity and the division 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?
It will decrease by $7,250.
It will increase by $39,500.
It will increase by $13,000.
It will increase by $33,250.