Transfer pricing (adapted from CPA exam). Kwan's Building Supplies has two decentralized divisions. Hardware and Pre-Fab. Pre-Fab has always purchased certain units from Hardware at $220 per unit. Because Hardware plans to raise the price to $280 per unit, Pre-Fab desires to purchase these units from outside suppliers for $220 per unit. Hardware's costs follow: variable costs per unit, $200; annual fixed costs, $30,000. Annual production of these units for Pre-Fab is 1,500 units.

If Pre-Fab buys from an outside supplier, the facilities Hardware uses to manufacture these units would remain idle. What would be the result if Kwan's Building Supplies'

management enforces a transfer price of $280 per unit between Hardware and Pre-Fab?