Elmira Manufacturing Inc. has two divisions, Division A and Division B. Division A produces car stereos that it sells to retail stores for a price of $82per unit. Its full capacity is at230,000units but it currently sells 200,000 units. It incurs the following costs in its production:
| Direct materials |
$36 |
| Direct labour |
$23 |
| Variable overhead |
$10 |
| Fixed overhead |
$4 |
Division B is purchasing15,000units of the same car stereos from an outside supplier for $74per unit.
1. Calculate the minimum transfer price Division A is willing to accept.
2. Determine the effect on the net income of Division A.
3.Determine the effect on the net income of Division B