1. (W) Eastern Company's Income Statement with no transfers between divisions are as follows. (Division A_Supplying Division, Division B_Demanding Division, Company as a whole) Sales 50,000 units x $20/unit 20,000 units x $40/unit Expenses Variable 50,000 units x $10/unit 20,000 units x $30*/unit Fixed Income from operations Eastern Inc. Income Statement For the year Ended Dec. 2017 Division A Division B Company as a Whole $1,000,000 $1,000,000 $800,000 $800,000 $500,000 300,000 200,000 $600,000 100,000 100,000 $500,000 600,000 400,000 300,000 *$30 = $20(material cost) + other variable conversion cost incurred in division B Instructions) (a) Assume that Division B currently purchased intermediate products from outside suppliers at 20 per unit. If Division A operate at the full capacity, What is optimal transfer price? (b) Assume that Division B currently purchased intermediate products from outside suppliers at 20 per unit. and Division A operate under the full capacity. If Division B needs 20,000 units and transfer price is set at $15, calculate the income from operations of division A, B and company as a whole. (c) Assume that Division currently purchased from outside suppliers at 20 per unit. and Division A operate under the full capacity. If Division B needs 20,000 units and transfer price is set at $20, calculate the income from operations of division A, B and company as a whole. (d) Explain the range of the negotiated transfer price between division A and B for maximizing income of company as a whole. -1-