The materials used by Hibiscus Company's Division A are currently purchased from an outside supplier at $55 per unit. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The two divisions have recently negotiated a transfer price of $48 per unit for the 20,000 units.
(a) By how much will each division's income increase as a result of this transfer?
(b) What is the total increase in income for Hibiscus Company?

Question

The materials used by Hibiscus Company's Division A are currently purchased from an outside supplier at $55 per unit. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The two divisions have recently negotiated a transfer price of $48 per unit for the 20,000 units. 
(a) By how much will each division's income increase as a result of this transfer? 
(b) What is the total increase in income for Hibiscus Company?

Quizplus · Accepted Answer

The Answer of The materials used by Hibiscus Company's Division A are currently purchased from an outside supplier at $55 per unit. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The two divisions have recently negotiated a transfer price of $48 per unit for the 20,000 units. 
(a) By how much will each division's income increase as a result of this transfer? 
(b) What is the total increase in income for Hibiscus Company?

The Materials Used by Hibiscus Company's Division a Are Currently