Third-Party Transfer Prices: Faster Electronics sells and services new computer systems. Faster has an arrange- ment with Swift Service Company whereby Swift Service performs warranty services on equipment sold by Faster as well as performs other repair work for Faster. From time to time, Faster Electronics takes a computer system in trade as part payment for a new system. Used systems acquired through the trade-in arrange- ment are sold to Penny-Pincher Processing, a used computer dealer. Ken Hellums owns a 20 percent interest in Faster Electronics, a 100 percent interest in Swift Service, and a 50 percent interest in Penny-Pincher Processing. In a recent transaction. Faster Electronics sold a computer system for $14,500. The system carried a one-year warranty. Faster Electronics paid Swift Service $2,000 for servicing this warranty. As part payment for the system, Mr. Hellums took an old system in trade and allowed $1,800 for the trade-in value. The old system was sold to Penny-Pincher Processing for $700. The difference between the trade-in value and the price to the wholesaler was deemed a discount on the sale price of the new system. The majority stockholder in Faster Electronics reviewed the transaction. The stockholder suggested that instead of buying the $2,000 warranty, Faster should pay for warranty service if and when needed. Based on past experience, this service would cost $500. Moreover, the stockholder stated that a review of selling prices for the traded model indicated that the retail price of the model was $1,600 and that this amount should be used as the basis for the sale to Penny-Pincher Processing.

Required: What effect would the changes in the prices assigned to the trade-in and warranty service transaction have on the operating profits which accrue to Mr. Heliums from these three business interests?