Question 1 - Materials used by the industrial divition of crow manufacturing are currently purchased by outside suppliers at a cost of $120 per unit. However the same materials are available from the materials division. The materilas division has unused capacity and can produce the materials needed by the Industrial division at a variable cost of $95 dollars per unit.
A) If a transfer price of $105 per unit is established and 40,000 units of materials are transferred, with no reduction in the materials division current sales, how much would Crow manufacturing's total income from operations increase??
B) How much would the Industrial divisions income from operations increase?
C) How much would the materials division s income from operations increase?
Question 2 - Based on Crow Manufacturing's data in the above problem, assume that a transfer price of $110 has been established and that 40,000 units of materials are transferred, with no reduction in the Materials Division's current sales.
a) How much would the Crow Manufacturing's total income from operations increase?
b) How much would the Industrial Division's income from operations increase?
c) How much would the Materials Division's income from operations increase?
d) If the negotiated price approach is used, what would be the range of acceptable transfer prices and why?