Jane 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 EarthAir division manufactures and sells air conditioners. The coming years budgeted income statement, based on a sales volume of 27,000 units, is as follows:

EARTHAIR DIVISION Budgeted Income Statement For the Fiscal Year
		Per Unit		Total (in thousands)
Sales revenue		$1,360			$36,720
Manufacturing costs
Compressor		238			6,426
Other raw materials		126			3,402
Direct labour		102			2,754
Variable overhead		153			4,131
Fixed overhead		109			2,943
Total manufacturing costs		728			19,656
Gross margin		632			17,064
Operating expenses
Variable selling		61			1,647
Fixed selling		65			1,755
Fixed administration		129			3,483
Total operating expenses		255			6,885
Net income before taxes		$377			$10,179

EarthAirs 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 ($68) in the selling price would increase the sales volume by 16%, or 4,320 units. EarthAir has enough production capacity to manage this increased volume with no increase in fixed costs. Currently, EarthAir uses a compressor in its units that it purchases from an outside supplier at a cost of $238 per compressor. The manager of EarthAir has approached the manager of Jane Industries compressor division about the sale of a compressor unit to EarthAir. The compressor division currently manufactures and sells to outside firms a unit that is similar to the compressor used by EarthAir. The specifications of the EarthAir compressor are slightly different and would reduce the compressor divisions raw materials cost by $5.10 per unit. In addition, the compressor division would not incur any variable selling costs for the units sold to EarthAir. The manager of EarthdAir wants all of the compressors it uses to come from one supplier and has offered to pay $66 for each compressor unit. The compressor division has the capacity to produce 87,000 units. The coming years budgeted income statement for the compressor division, which follows, is based on a sales volume of 76,000 units without considering EarthAirs proposal.

COMPRESSOR DIVISION Budgeted Income Statement For the Fiscal Year
		Per Unit		Total (in thousands)
Sales revenue		$100			$7,600
Manufacturing costs
Raw materials		17			1,292
Direct labour		11			836
Variable overhead		14			1,064
Fixed overhead		15			1,140
Total manufacturing costs		57			4,332
Gross margin		43			3,268
Operating expenses
Variable selling		8			608
Fixed selling		6			456
Fixed administration		10			760
Total operating expenses		24			1,824
Net income before taxes		$19			$1,444

Calculate the following for EarthAir.

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 EarthAir make the 5% price reduction on its air conditioners even if it cannot acquire the compressors internally for $66 each? select an option YesNo

Ignoring your answer to part (a), assume that EarthAir needs 31,320 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.)

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 $66 each?

Compressor division should select an option reject or accept the offer to supply the compressor units for $66 each.

Ignoring your answer to part (a), assume that EarthAir needs 31,320 units. Calculate the advantage that the corporation and EarthAir 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 Jane Industries for the compressor division to supply the compressor units at $66 each to the EarthAir division? select an option yes or no