Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $447 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 $371 per unit. Assume that a transfer price of $425 has been established and that 26,500 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? d. Any transfer price will cause the total income of the company to , as long as the supplier division capacity is toward making materials for products that are ultimately sold to the outside.

Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $447 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 $371 per unit. Assume that a transfer price of $425 has been established and that 26,500 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? d. Any transfer price will cause the total income of the company to , as long as the supplier division capacity is toward making materials for products that are ultimately sold to the outside.

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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Question

Decision on transfer pricing
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $447 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 $371 per unit.
Assume that a transfer price of $425 has been established and that 26,500 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?
d. Any transfer price will cause the total income of the company to
as long as the supplier division capacity is
toward making materials for products that are ultimately sold to the outside.

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