Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $1,350 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 $900 per unit. a. If a transfer price of $1,000 per unit is established and 75,000 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? $fill in the blank 1 b. How much would the Instrument Division's operating income increase? $fill in the blank 2 c. How much would the Components Division's operating income increase? $fill in the blank 3
Decision on Transfer Pricing
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $1,350 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 $900 per unit.
a. If a transfer price of $1,000 per unit is established and 75,000 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?
$fill in the blank 1
b. How much would the Instrument Division's operating income increase?
$fill in the blank 2
c. How much would the Components Division's operating income increase?
$fill in the blank 3
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