EX.I6.7 Eastwest Industries is a highly decentralized corporation with independent operating divisions. Each division is evaluated and rewarded based on its total net income. One of the divisions, Visual, manufactures and sells air conditioners. Visual is projecting sales of 17,400 for next year. Another division, Webco, makes and sells compressors. lts projected income statement for next year follows: Webco Division Pro forma income statement For next year 1 I 2 Per unit Total Sales revenues $100 $6,400,000 Less cost of goods sold: Direct materials 12 768,000 Direct labour 8 512,000 Variable overhead 10 640,000 Fixed overhead 11 704,000 41 2 624 000 Gross profit 59 3,776,000 Operating expenses: Variable selling expenses 6 384,000 Fixed selling expenses 4 256,000 Fixed administrative expenses 7 448,000 17 1 088 000 Pre-tax net income 42 i2,688,000 Webco has the capacity to produce 75,000 compressors annually. Visual currently purchases compressors from an outside source at $70, and proposes that Webco transfer compressors to it at a transfer price of $50. The Visual manager justified the low bid based on some cost savings that should be realized if compressors are transferred. Because specifications for this compressor are slightly different from Webco's standard model, $1.50 of direct materials cost per compressor can be saved and no variable selling expenses will be incurred on compressors transferred. Per unit Total Sales revenues $100 $6,400,000 Less cost of goods sold: Direct materials 12 768,000 Direct labour 8 512,000 Variable overhead 10 640,000 Fixed overhead 11 704,000 41 2 624 000 Gross profit 59 3,776,000 Operating expenses: Variable selling expenses 6 384,000 Fixed selling expenses 4 256,000 Fixed administrative expenses 7 448,000 17 1 ,088,000 Pretax net income 42 $2,688,000 Webco has the capacity to produce 75,000 compressors annually. Visual currently purchases compressors from an outside source at $70, and proposes that Webco transfer compressors to it at a transfer price of $50. The Visual manager justified the low bid based on some cost savings that should be realized if compressors are transferred. Because specifications for this compressor are slightly different from Webco's standard model, $1.50 of direct materials cost per compressor can be saved and no variable selling expenses will be incurred on compressors transferred. Required: a) Compute the minimum transfer price Webco should accept. b) Compute the estimated effect on Webco's net income if the 17,400 compressors are transferred at $50 each. c) Determine whether it would be in Eastwest Industries\" best interest for Webco to transfer compressors at $50 each