Refer to the information presented in E11-12. Assume that the Fabrication Division has enough excess capacity to accommodate the request.

Required:
1. Explain whether the Fabrication Division should accept the \($25\) transfer price proposed by management.

2. Calculate the effect on Fabrication Division’s net income if it accepts the \($25\) transfer price.

Data from E11-12

The Fabrication Division of Hawking Company manufactures an antenna component used by the Electronics Division. This antenna is also sold to external customers for \($35\) per unit. Variable costs for the antenna are \($17\) per unit and fixed cost is \($7\) per unit. Hawking executives would like for the Fabrication Division to transfer 8,000 units to the Electronics Division at a price of \($25\) per unit.