Third-Party Transfer Prices : New Sweden Plant Perfections grows specimen plants for landscape contractors. The wholesale price of each plant is $40. During the past year. New Sweden Plant Perfections sold 5,000 specimen plants. New Sweden Plant Perfections is owned 60 percent by Mr. New and 40 percent by Ms. Sweden. Of the plants sold last year, 1,000 were sold to Fayette Landscape Co. Mr. New has a 5 percent interest in Fayette Landscape Co., and Ms. Sweden has a 60 percent interest in Fayette Landscape Co. At the end of the year, Ms. Sweden noted that Fayette was the largest buyer of New Sweden plants. She suggested that the plant company give Fayette Landscape a 10 percent reduction in prices for the coming year in recognition of their position as a preferred customer.

Required: Assuming that Fayette Landscape purchases the same number of plants at the same prices in the coming year, what effect would the price reduction have on the operating profits which accrue to Mr. New and to Ms. Sweden for the coming year?