Decision on transfer pricing. Materials used by the InstrumentDivision of Ziegler Inc. are currently purchased from outsidesuppliers at a cost of $359 per unit. However, thesame materialsare available from the Components Division. The ComponentsDivision has unused capacity and can produce the materialsneeded bythe Instrument Division at a variable cost of $298 perunit. Assume that a transfer price of $341 has been establishedand that 34,200 units of materials are transferred, with noreduction in the Components Division's current sales.a. Howmuch would Ziegler Inc.'s total operating income increase?b. How much would the Instrument Division's operating incomeincrease?c. How much would the Components Division's• operating income increase?

Step 1: a) Cost of buying from outside suppliers = Number of units * cost per unit = 34,200 * $359…

Answered: Decision on transfer pricing. Materials…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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