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Decision on transfer pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $ 3
Decision on transfer pricing
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $ 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 $ per unit.
Assume that a transfer price of $ has been established and that units of materials are transferred, with no reduction in the Components
Division's current sales.
a How much would Ziegler Inc.s total operating income increase?
b How much would the Instrument Division's operating income increase?
c How much would the Components Division's operating income increase?
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