Exoplex Industries Inc. is a diversified aerospace company, including two operating divisions, Semiconductors and Navigational Systems. Condensed divisional income statements, which involve no intracompany transfers and include a breakdown of expenses into variable and fixed components, are as follows:

Exoplex Industries Inc. Divisional Income Statements For the Year Ended December 31, 20Y8

Line Item Description	Semiconductors Division	Navigational Systems Division	Total
Sales:
2,240 units $396 per unit	$887,040		$887,040
3,675 units $590 per unit		$2,168,250	2,168,250
Total sales	$887,040	$2,168,250	$3,055,290
Expenses:
Variable:
2,240 units $232 per unit	$(519,680)		$(519,680)
3,675 units $472* per unit		$(1,734,600)	(1,734,600)
Fixed	(220,000)	(325,000)	(545,000)
Total expenses	$(739,680)	$(2,059,600)	$(2,799,280)
Operating income	$147,360	$108,650	$256,010

*$432 of the $472 per unit represents materials costs, and the remaining $40 per unit represents other variable conversion expenses incurred within the Navigational Systems Division.

The Semiconductors Division is presently producing 2,240 units out of a total capacity of 2,820 units. Materials used in producing the Navigational Systems Division's product are currently purchased from outside suppliers at a price of $432 per unit. The Semiconductors Division is able to produce the components used by the Navigational Systems Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

Required:

Question Content Area

1. Would the market price of $432 per unit be an appropriate transfer price for Exoplex Industries Inc.?

Yes or No

2. If the Navigational Systems Division purchases 580 units from the Semiconductors Division, rather than externally, at a negotiated transfer price of $310 per unit, how much would the operating income of each division and total company operating income increase?

The Semiconductors Division's operating income would increase by -------------------------$

The Navigational Systems Division's operating income would increase by -------------------------$

Exoplex Industries Inc.'s total operating income would increase by ------------------------$

Question Content Area

3. Prepare condensed divisional income statements for Exoplex Industries Inc. based on the data in part (2).

Exoplex Industries Inc. Divisional Income Statements For the Year Ended December 31, 20Y8

Line Item Description	Semi- conductors	Navigational Systems	Total
Sales:
2,240 units	units		units
580 units	units		units
3,675 units		$units	units
Total sales	$	$	$
Expenses:
Variable:
2,820 units	$units		$units
580 units		$units	units
3,095 units		units	units
Fixed	?	?	?
Total expenses	$	$	$
Operating income	$	$	$

Question Content Area

4. If a transfer price of $340 per unit is negotiated, how much would the operating income of each division and total company operating income increase?

The Semiconductors Division's operating income would increase by ---------------------- $

The Navigational Systems Division's operating income would increase by ----------------------$

Exoplex Industries Inc.'s total operating income would increase by

-----------------------$ .

5b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price? -------------------------$