Decision on Transfer Pricing

Materials used by the Instrument Division of T_Kong Industries are currently purchased from outside suppliers at a cost of $346 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 $287 per unit.

Assume that a transfer price of $329 has been established and that 36,500 units of materials are transferred, with no reduction in the Components Division's current sales.

a.How much would T_Kong 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?

$

d.Any transfer price will cause the total income of the company to increase , as long as the supplier division capacity is usedtoward making materials for products that are ultimately sold to the outside.