Mcsweeney Corporation has Stuff Division that makes stuff for other divisions and outside customers. The company's Maquinaria Division has asked the Stuff Division to provide special parts. The special parts would require $24.25 per unit in variable production costs. The Maquinaria Division has received an initial bid from an outside supplier for the special parts at $37.00 per unit.

To have time and space to produce the special part, the Stuff Division would have to cut back the production of another part the Sonic Isolator it is producing. The Sonic Isolator sells for $41.50 per unit and requires $27.12 per unit in variable production costs. The packaging and shipping costs of the Sonic Isolator are $4.88 per unit. The allocated fixed production cost per unit of Sonic Isolator is $3.22.

Assume the transfer amount is 3,778 units. Packaging and shipping costs for the new special part to the Maquinaria Division would be only $2.60 per unit. The Stuff Division is now producing and selling 26,000 units of the Sonic Isolator each year. Production and sales of the Sonic Isolator would drop by 3% if the new special parts are made for the Maquinaria Division.

a) ) What lowest unit transfer price the Stuff Division would be willing to agree to for the transfer of 3,778 special parts?

b)Now assume the Maquinaria Division's demand has increased. This increase is expected to result in an additional contribution margin of $48,000. Instead of transferring the quantity above, now assume that the Maquinaria Division wants 4,715 special parts. Because of the increased quantity, the outside supplier now quotes 536.26 per part and offers an 11% purchase discount. What highest unit transfer price the Maquinaria Division would be willing to agree to for the transfer of 4,715 special parts per year?

c) Instead of the special part listed above, the Maquinaria Division has changed plans and now wants 3,570 units of a more complicated part named the Sonic Inhibitor.

The Sonic Inhibitor is an industrial-quality version of the Sonic Isolator currently produced for customers. The Maquinaria Division has a bid from an outside supplier for Sonic Inhibitor at $46.14 per unit.

Sonic Inhibitor would require $26.23 per unit in variable production costs for the Stuff Division and $1.33 per unit in packaging and shipping costs. For every 10 Sonic Inhibitors transferred, there would be approximately seven fewer Sonic Isolators produced and sold to regular customers.

What is the effect in dollars on McSweeney Corporation's operating income if the transfer of the Sonic Inhibitor takes place?