Decision on transfer pricing. Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $359 per unit. However, thesame materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed bythe Instrument Division at a variable cost of $298 per unit. Assume that a transfer price of $341 has been established and that 34,200 units of materials are transferred, with no reduction in the Components Division's current sales.a. 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 $359 per unit. However, thesame materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed bythe Instrument Division at a variable cost of $298 per unit. Assume that a transfer price of $341 has been established and that 34,200 units of materials are transferred, with no reduction in the Components Division's current sales.a. 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 $359 per unit. However, thesame materials
are available from the Components Division. The Components
Division has unused capacity and can produce the materials
needed bythe Instrument Division at a variable cost of $298 per
unit. Assume that a transfer price of $341 has been established
and that 34,200 units of materials are transferred, with no
reduction in the Components Division's current sales.a. 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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