The materials used by the Hibiscus Company Division A are currently purchased fr

Question

The materials used by the Hibiscus Company Division A are currently purchased from outside supplier at $54 per unit. Division B is able to supply Division A with 23,300 units at a variable cost of $49 per unit. The two divisions have recently negotiated a transfer price of $50 per unit for the 23,300 units. By how much will each division's income and the company's total income change as a result of this transfer? Enter an increase as a positive number and a decrease as a negative number.

Change in income for division A

Change in income for division B

Total change in income for Hibiscus Company

Thank you!

Explanation / Answer

Calculation of the change in Income Division A Price if purchased from outside 54 per unit From Division B 50per unit Increase in income per unit 54-50 4 Total Units 23300 Total Increase in income 23300*4 93200 Division B If sold outside 49 To Division A 50 Loss 1 Decrease in Income 23300*1 23300 Total Change in Income 93200-23300 69900

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