Exercise $11-7($Algo$)$ Transfer Pricing from the Viewpoint of the Entire Company $[$L$011-3]$

Division A manufactures electronic circuit boards that can be sold to Division B of the same company or to outside customers. Last

year, the following activity occurred in Division A:

Sales to Division B were at the same price as sales to outside customers. The circuit boards purchased by Division B were used in an

electronic instrument manufactured by that division $($one board per instrument$).$ Division B incurred $$280$ in additional variable cost per

instrument and then sold the instruments for $$680$ each.

Required:

Calculate the net operating incomes earned by Division $A,$ Division $B,$ and the company as a whole.

Assume Division A$\text{'}$s manufacturing capacity is $20,100$ circuit boards. Next year, Division B wants to purchase $5,600$ circuit boards

from Division A rather than $4,600.($Circuit boards of this type are not available from outside sources.$)$ From the standpoint of the

company as a whole, should Division A sell the $1,000$ additional circuit boards to Division B or continue selling them to outside

customers?