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The following information applies to the questions displayed below. ] Washburn Associates has two divisions. Western Division, which has an investment base of 5 0
The following information applies to the questions displayed below.
Washburn Associates has two divisions. Western Division, which has an investment base of produces and sells units of a product at a market price of $ per unit. Its variable costs total $ per unit. The division also charges each unit $ of fixed costs based on a capacity of units.
Eastern Division wants to purchase units from Western. However, it is willing to pay only $ per unit because it has an opportunity to accept a special order at a reduced price. The order is economically justifiable only if Eastern can acquire Westerns output at a reduced price.
Division managers are evaluated using residual income using a percent cost of capital.
Required:
What is the residual income for Western without the transfer to Eastern?
What is Westerns residual income if it transfers units to Eastern at $ each?
What is the minimum transfer price for the unit order that Western would accept if it were willing to maintain the same residual income with the transfer as it would earn by only selling its units to the outside market?
Note: Round your final answer to decimal places.
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