1. Sonic Electronics operates as a decentralized company. The company has two divisions Battery and Camera. Battery division annual capacity is 90,000 units of battery charger which are sold internally and externally. The revenue and costs associated with the production of one battery charger:

Selling price to external customers $ 23

Variable manufacturing cost 12

Fixed cost per unit (based on capacity) 4

Variable selling cost per unit 3

Fixed selling $360,000

The camera division would like to purchase 27,000 units of battery chargers. Currently the division can purchase the battery charger from an overseas supplier at $ 18 per unit.

Required:

1. Assuming the Battery division is currently producing and selling 54,000 units. The manager of the camera division offers to pay $17.50 for the battery charger. Should battery division accept the $17.50 offer. What is the impact on Sonic Electronics net income if the transfer price is accepted?

2. Assuming the Battery division is currently producing and selling 75,000 units. The manager of the camera division offers to pay $17.50 for the battery charger. Should battery division accept the $17.50 offer. What is the impact on Sonic Electronics net income if the transfer price is accepted? Would management of Sonic Electronics want the transfer?