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Phoenix Incorporated, a cellular communication company, has multiple business units, organized as divisions. Each division's management is compensated based on the division's operating income. Division

image text in transcribedimage text in transcribed Phoenix Incorporated, a cellular communication company, has multiple business units, organized as divisions. Each division's management is compensated based on the division's operating income. Division A currently purchases cellular equipment from outside markets and uses it to produce communication systems. Division B produces similar cellular equipment that it sells to outside customers-but not to Division A at this time. Division A's manager approaches Division B's manager with a proposal to buy the equipment from Division B. If it produces the cellular equipment that Division A desires, Division B will incur variable manufacturing costs of $60 per unit. Relevant Information about Division B Sells 100,000 units of equipment to outside customers at $130 per unit Operating capacity is currently 80%; the division can operate at 100% Variable manufacturing costs are $70 per unit Variable marketing costs are $8 per unit Fixed manufacturing costs are $980,000 Income per Unit for Division A (assuming parts purchased externally, not internally from division B) Sales revenue Manufacturing costs: Cellular equipment $ 320 80 Other materials 10 Fixed costs 40 Total manufacturing costs Gross margin 130 190 Marketing costs: Variable 35 Fixed 15 Total marketing costs 50 Operating income per unit $ 140 Required: 1. Division A proposes to buy 50,000 units from Division B at $75 per unit. What would be the effect of accepting this proposal on Division B's operating income? What would be the effect on the operating income of Phoenix Incorporated as a whole? 2. Now suppose Division A could purchase from multiple suppliers and would accept partialshipment from Division B. How many units should Division B sell to Division A at $75 per unit, if any? What would be the effect on Division B's operating income? What would be the effect on the operating income of Phoenix Incorporated as a whole? 3. What is the range of transfer prices over which the divisional managers might negotiate a final transfer price? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Now suppose Division A could purchase from multiple suppliers and would accept partialshipment from Division B. How many units should Division 8 sell to Division A at $75 per unit, if any? What would be the effect on Division B's operating income? What would be the effect on the operating income of Phoenix Incorporated as a whole? Division B capacity Division B capacity to sell to Division A after all external sales increase in B operating income from partial sales to A Increase in Phoenix Incorporated operating income from B sale s to A

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