Question

Materials used by the Instrument Division of T_Kong Industries are currently purchased from outside suppliers at a cost of $290 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 $241 per unit.

a.  If a transfer price of $264 per unit is established and 39,200 units of materials are transferred, with no reduction in the Components Division’s current sales, how much would T_Kong Industries’ total income from operations increase?
$

b.  How much would the Instrument Division’s income from operations increase?
$

c.  How much would the Components Division’s income from operations increase?
$

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