Ivanhoe Industries is a diversified corporation with separate operating divisions. Each divisions performance is evaluated based on its total dollar profits and return on division investment. The WindAir division manufactures and sells air conditioners. The coming years budgeted income statement, based on a sales volume of 22,000 units, is as follows:

WINDAIR DIVISION Budgeted Income Statement For the Fiscal Year
		Per Unit		Total (in thousands)
Sales revenue		$1,000			$22,000
Manufacturing costs
Compressor		175			3,850
Other raw materials		93			2,046
Direct labour		75			1,650
Variable overhead		113			2,486
Fixed overhead		80			1,760
Total manufacturing costs		536			11,792
Gross margin		464			10,208
Operating expenses
Variable selling		45			990
Fixed selling		48			1,056
Fixed administration		95			2,090
Total operating expenses		188			4,136
Net income before taxes		$276			$6,072

WindAirs manager believes that sales can be increased if it reduces the unit selling price of the air conditioners. A market research study conducted by an independent firm at the managers request indicates that a 5% reduction ($50) in the selling price would increase the sales volume by 16%, or 3,520 units. WindAir has enough production capacity to manage this increased volume with no increase in fixed costs. Currently, WindAir uses a compressor in its units that it purchases from an outside supplier at a cost of $175 per compressor. The manager of WindAir has approached the manager of Ivanhoe Industries compressor division about the sale of a compressor unit to WindAir. The compressor division currently manufactures and sells to outside firms a unit that is similar to the compressor used by WindAir. The specifications of the WindAir compressor are slightly different and would reduce the compressor divisions raw materials cost by $3.75 per unit. In addition, the compressor division would not incur any variable selling costs for the units sold to WindAir. The manager of WindAir wants all of the compressors it uses to come from one supplier and has offered to pay $80 for each compressor unit. The compressor division has the capacity to produce 82,500 units. The coming years budgeted income statement for the compressor division, which follows, is based on a sales volume of 71,500 units without considering WindAirs proposal.

COMPRESSOR DIVISION Budgeted Income Statement For the Fiscal Year
		Per Unit		Total (in thousands)
Sales revenue		$130			$9,295
Manufacturing costs
Raw materials		14			1,001
Direct labour		10			715
Variable overhead		12			858
Fixed overhead		14			1,001
Total manufacturing costs		50			3,575
Gross margin		80			5,720
Operating expenses
Variable selling		6			429
Fixed selling		4			286
Fixed administration		8			572
Total operating expenses		18			1,287
Net income before taxes		$62			$4,433

A. Calculate the following for WindAir. Fill in the blank

Variable costs		$enter the variable costs per unit in dollars	per unit
Total fixed costs		$enter the total fixed costs in dollars
New selling price		$enter the new selling price in dollars
New sales volume		enter the new sales volume in units	units
Net income		$enter the net income in dollars

Should WindAir make the 5% price reduction on its air conditioners even if it cannot acquire the compressors internally for $80 each?

Yes or No?

B) Ignoring your answer to part (a), assume that WindAir needs 25,520 units. Calculate the following for the Compressor Division. (Round "Variable cost of current sales" answer to 0 decimal places, e.g. 85 and all other answers to 2 decimal places, e.g. 25.75.) Fill in the blanks

Variable cost		$enter the variable cost per unit in dollars rounded to 2 decimal places per unit
Variable cost of current sales		$enter the variable cost of current sales per unit in dollars rounded to 0 decimal places per unit
Opportunity cost		$enter the opportunity cost in dollars per unit rounded to 2 decimal places per unit
Minimum transfer price		$enter the minimum transfer price per unit in dollars rounded to 2 decimal places per unit

Should the compressor division be willing to supply the compressor units for $80 each?

Compressor division should select an option (reject) or (accept) the offer to supply the compressor units for $80 each.

C) Ignoring your answer to part (a), assume that WindAir needs 25,520 units. Calculate the advantage that the corporation and Wind Air would be making from the sales.

Corporate advantage from internal sales

$enter the corporate advantage from internal sales in dollars

Would it be in the best interest of Ivanhoe Industries for the compressor division to supply the compressor units at $80 each to the WindAir division? select an option Yes or. No