Materials used by the Industrial Divison of Crow Manufacturing are currently purchased from outside suppliers at a cost of $120 per unit. However, the same materials are available from the materials division. The Materials division has unused capacity and can produce the materials needed by the industrial division at a variable cost of $95 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 divisions current sales, how much would 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 divisions income from operations increase?
Based on Crow Manufucturing's data in the above question, 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 divisions sales.
A. 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 divisions income from operations increase?
D. If the negotiated price approach is used, what would be the range of acceptable transfer prices and why?