Division A of Pirkul and Co., is theonlysource of supply for an intermediate product, INTPRO, that can potentially be converted by Division B into a finished product, FINPRO.There is no outside market for INTPRO.If A decides to produce INTPRO, it can produce 60,000 units per month after spending variable costs of $10.00 per unit.As an alternative, without any change in its monthly fixed costs, it can produce and sell (in the outside market) 60,000 units per month of a new product, ANEWPRO, for a contribution of $7 per unit.The above two options are the only opportunities available to A.

If Division B decides to convert INTPRO into FINPRO, it will need one unit of INTPRO to manufacture one unit of FINPRO and it can then sell 60,000 units of FINPRO at a selling price of $48 per unit after spending anadditional$10 per unit in variable costs.As an alternative, without any change in its monthly fixed costs, B can produce and sell 40,000 units per month of a new product, BNEWPRO, using components bought from outside, for a contribution of $21 per unit.Again, assume that these are the only two opportunities that B has.

The total incremental economic benefit to Pirkul and Co. because of the transfer and conversion of INTPRO into FINPRO, when compared to the next best action, is:

-$420,000

$240,000

-$240,000

$600,000

0

$420,000