Decision on transfer pricing

Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $280 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 $232 per unit.

Assume that a transfer price of $266 has been established and that 38,400 units of materials are transferred, with no reduction in the Components Divisions current sales.

a. How much would XPort Industries total income from operations increase? $fill in the blank

b. How much would the Instrument Divisions income from operations increase? $fill in the blank

c. How much would the Components Divisions income from operations increase? $fill in the blank

d. Any transfer price will cause the total income of the company to

(increase or decrease)

, as long as the supplier division capacity is

(used or not used)

toward making materials for products that are ultimately sold to the outside.