Chapter 09 Homework (Application) Decision on transfer pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $361 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $300 per unit. Assume that a transfer price of $343 has been established and that 46,300 units of > materials are transferred, with no reduction in the Components Division's current sales. a. How much would XPort Industries' total income from operations increase? b. How much would the Instrument Division's income from operations increase? $ c. How much would the Components Division's income from operations increase? $ 1 d. Any transfer price will cause the total income of the company to increase as long as the supplier division capacity is used toward making materials for products that are ultimately sold to the outside. Feedback Check My Work a-c. Multiply the units transferred by the difference between the transfer price and the variable cost per unit (supplying company) or the market price and the transfer price (purchasing company). d. Consider the effect of setting a transfer price outside the acceptable range. Learning Objective 5