Phoenlx 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$\text{'}$s manager approaches Division B$\text{'}$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 varlable 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 $100\%$

Varlable manufacturing costs are $$70$ per unit

Varlable marketing costs are $$8$ per unlt

Fixed manufacturing costs are $$720,000$

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

Sales revenue

$$32$

Manufacturing costs:

Cellular equipment $80$

Other materials $10$

Fixed costs $4$

Total manufacturing costs $13$

Gross margin $19$

Marketing costs:

Variable $35$

Fixed $15$

Total marketing costs $50$

Operating income per unit $${140}_{{?}_{?}}$

Required:

Division A proposes to buy $33,750$ unlts from Division B at $$75$ per unit. What would be the effect of accepting this proposal on

Division B$\text{'}$s operating Income? What would be the effect on the operating Income of Phoenlx Incorporated as a whole?

Now suppose Division A could purchase from multiple suppliers and would accept partialshipment from Division B$.$ How many unlts

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?

What is the range of transfer prices over which the divisional managers might negotlate a final transfer price?

Answer is complete but not entirely correct.

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

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?