eBook

Question Content Area

Decision on Transfer Pricing

Materials used by the Instrument Division of T_Kong Industries are currently purchased from outside suppliers at a cost of $278 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 $231 per unit.

a. If a transfer price of $253 per unit is established and 29,400 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would T_Kong Industries total income from operations increase? $fill in the blank 1

b. How much would the Instrument Divisions income from operations increase? $fill in the blank 2

c. How much would the Components Divisions income from operations increase? $fill in the blank 3