Question

Wiring used by the Appliance Division of Kaufman Manufacturing is currently purchased from outside suppliers at a cost of $25 per unit. However, the same materials are available from the Electronic Division. The Electronic Division has unused capacity and can produce the materials needed by the Appliance Division at a variable cost of $20 per unit.

Assume that a transfer price of $22 has been established and that 150,000 units of materials are transferred, with no reduction in the Electronic Division’s current sales.

a. How much would Kaufman Manufacturing’s total operating income increase?
$

b. How much would the Appliance Division’s operating income increase?
$

c. How much would the Electronic Division’s operating income increase?
$

Answer 1