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Materials used by the Instrument Division of T _ Kong Industries are currently purchased from outside suppliers at a cost of $ 3 6 0
Materials used by the Instrument Division of TKong Industries are currently purchased from outside suppliers at a cost of $ per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $ per unit.
Assume that a transfer price of $ has been established and that units of materials are transferred, with no reduction in the Components Divisions current sales.
a How much would TKong Industries' total income from operations increase?
b How much would the Instrument Division's income from operations increase?
c How much would the Components Division's income from operations increase?
d Any transfer price will cause the total income of the company to
increase, as long as the supplier division capacity is used toward making materials for products that are ultimately sold to the outside.
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