Decision on transfer pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $323 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $268 per unit. a. If a transfer price of $294 per unit is established and 42,300 units of materials are transferred, with no reduction in the Components Division's current sales, how much would Ziegler Inc.'s total operating income increase? b. How much would the Instrument Division's operating income increase? c. How much would the Components Division's operating income increase?
Decision on transfer pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $323 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $268 per unit. a. If a transfer price of $294 per unit is established and 42,300 units of materials are transferred, with no reduction in the Components Division's current sales, how much would Ziegler Inc.'s total operating income increase? b. How much would the Instrument Division's operating income increase? c. How much would the Components Division's operating income increase?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Decision on transfer pricing
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $323 per unit. However, the same materials are available from the Components Division. The Components Division has unused
capacity and can produce the materials needed by the Instrument Division at a variable cost of $268 per unit.
a. If a transfer price of $294 per unit is established and 42,300 units of materials are transferred, with no reduction in the Components Division's current sales, how much would Ziegler Inc.'s total operating income increase?
b. How much would the Instrument Division's operating income increase?
c. How much would the Components Division's operating income increase?
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