InterGlobal Industries is a diversified corporation with separate operating divisions. Each divisions performance is evaluated on the basis of profit and return on investment. The Air Comfort Division manufactures and sells air-conditioner units. The coming years budgeted income statement, which follows, is based upon a sales volume of 18,000 units.

AIR COMFORT DIVISION
Budgeted Income Statement
(In thousands)
	Per Unit	Total
Sales revenue		$	401				$	7,218
Manufacturing costs:
Compressor		$	76				$	1,368
Other direct material			33					594
Direct labor			28					504
Variable overhead			30					540
Fixed overhead			25					450
Total manufacturing costs		$	192				$	3,456
Gross margin		$	209				$	3,762
Operating expenses:
Variable selling		$	22				$	396
Fixed selling			21					378
Fixed administrative			35					630
Total operating expenses		$	78				$	1,404
Net income before taxes		$	131				$	2,358

Air Comforts division manager believes sales can be increased if the price of the air-conditioners is reduced. A market research study by an independent firm indicates that a 6 percent reduction in the selling price would increase sales volume 22 percent, or 3,960 units. The division has sufficient production capacity to manage this increased volume with no increase in fixed costs. The Air Comfort Division uses a compressor in its units, which it purchases from an outside supplier at a cost of $76 per compressor. The Air Comfort Division manager has asked the manager of the Compressor Division about selling compressor units to Air Comfort. The Compressor Division currently manufactures and sells a unit to outside firms that is similar to the unit used by the Air Comfort Division. The specifications of the Air Comfort Division compressor are slightly different, which would reduce the Compressor Divisions direct material cost by $2.70 per unit. In addition, the Compressor Division would not incur any variable selling costs in the units sold to the Air Comfort Division. The manager of the Air Comfort Division wants all of the compressors it uses to come from one supplier and has offered to pay $48 for each compressor unit. The Compressor Division has the capacity to produce 75,000 units. Its budgeted income statement for the coming year, which follows, is based on a sales volume of 64,000 units without considering Air Comforts proposal.

COMPRESSOR DIVISION
Budgeted Income Statement
(In thousands)
	Per Unit	Total
Sales revenue		$	91				$	5,824
Manufacturing costs:
Direct material		$	14				$	896
Direct labor			10					640
Variable overhead			12					768
Fixed overhead			15					960
Total manufacturing costs		$	51				$	3,264
Gross margin		$	40				$	2,560
Operating expenses:
Variable selling		$	8				$	512
Fixed selling			6					384
Fixed administrative			9					576
Total operating expenses		$	23				$	1,472
Net income before taxes		$	17				$	1,088

Required: 1-a. Calculate the increase/decrease in net income before taxes for Continental Industries assuming the Air Comfort Division institutes the 6 percent price reduction on its air-conditioner units even if it cannot acquire the compressors internally for $48 each. 1-b. Should the Air Comfort Division institute the 6 percent price reduction? 2. Independently of your answer to Required 1-a, assume the Air Comfort Division needs 21,960 units. Calculate the increase/decrease in net income before taxes for the Compressor Division if it supplies the 21,960 compressor units for $48 each. 3. Independently of your answer to Required 1-a, assume the Air Comfort Division needs 21,960 units. Calculate the increase/decrease in net income before taxes for Continental Industries if the Compressor Division supplies the 21,960 compressor units for $48 each.