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 $67,500$ 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 $$720,000$

Income per Unit for Division A $($assuming parts purchased externally, not internally from division B$)$

Sales revenue $ $320$

Manufacturing costs:

Cellular equipment $80$

Other materials $10$

Fixed costs $40$

Total manufacturing costs $130$

Gross margin $190$

Marketing costs:

Variable $35$

Fixed $15$

Total marketing costs $50$

Operating income per unit $ $140$

Required:

$1.$ Division A proposes to buy $33,750$ 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?Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

What is the range of transfer prices over which the divisional managers might negotiate a final transfer price?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$\text{'}$s operating income?

What would be the effect on the operating income of Phoenix Incorporated as a whole?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$\text{'}$s operating income?

What would be the effect on the operating income of Phoenix Incorporated as a whole?