In: Accounting
Decision on Transfer Pricing
Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $342 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $284 per unit.
a. If a transfer price of $311 per unit is
established and 29,900 units of materials are transferred, with no
reduction in the Components Division's current sales, how much
would XPort Industries’ total income from operations
increase?
$fill in the blank 1
b. How much would the Instrument Division’s
income from operations increase?
$fill in the blank 2
c. How much would the Components Division's
income from operations increase?
$fill in the blank 3