Materials used by the Industrial Division 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 Division’s 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 Division’s income from operations increase?