Pharoah 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 23,000 units, is as follows: WINDAIR DIVISION Budgeted Income Statement For the Fiscal Year Per Unit Total (in thousands) Sales revenue $1,080 $24,840 Manufacturing costs Compressor 189 4,347 Other raw materials 100 2,300 Direct labour 81 1,863 Variable overhead 122 2,806 Fixed overhead 86 1,978 Total manufacturing costs 578 13,294 Gross margin 502 11,546 Operating expenses Variable selling 49 1,127 Fixed selling 51 1,173 Fixed administration 103 2,369 Total operating expenses 203 4,669 Net income before taxes $299 $6,877 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 ($54) in the selling price would increase the sales volume by 16%, or 3,680 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 $189 per compressor. The manager of WindAir has approached the manager of Pharoah 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 $4.05 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 $70 for each compressor unit. The compressor division has the capacity to produce 83,500 units. The coming years budgeted income statement for the compressor division, which follows, is based on a sales volume of 72,500 units without considering WindAirs proposal. COMPRESSOR DIVISION Budgeted Income Statement For the Fiscal Year Per Unit Total (in thousands) Sales revenue $110 $7,975 Manufacturing costs Raw materials 16 1,160 Direct labour 10 725 Variable overhead 14 1,015 Fixed overhead 16 1,160 Total manufacturing costs 56 4,060 Gross margin 54 3,915 Operating expenses Variable selling 8 580 Fixed selling 6 435 Fixed administration 10 725 Total operating expenses 24 1,740 Net income before taxes $30 $2,175 Calculate the following for WindAir. 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 $70 each? select an option Ignoring your answer to part (a), assume that WindAir needs 26,680 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 $70 each? Compressor division should select an option the offer to supply the compressor units for $70 each. Ignoring your answer to part (a), assume that WindAir needs 26,680 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 Pharoah Industries for the compressor division to supply the compressor units at $70 each to the WindAir division? select an option