Question

Decision on transfer pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $446 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 $370 per unit. Assume that a transfer price of $424 has been established and that 41,400 units of materials are transferred, with no reduction in the Components Division's current sales. a. How much would XPort Industries' total income from operations increase? b. How much would the Instrument Division's income from operations increase C. How much would the Components Division's income from operations 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

Answer 1

Outside price	446
Unused capacity
Material production cost	370
Transfer price	424
Units	41400
a)	(446-370)*41400
	3146400
b)	(446-424)*41400
	910800
c)	(424-370)*41400
	2235600

d)

Increase

not used

Note:-

I just guessed the answer d because options were not available in the attached question.

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