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 $52 per unit. Division B is able to supply Division A with 17,500 units at a variable cost of $50 per unit. The two divisions have recently negotiated a transfer price of $48 per unit for the 17,500 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 ?

Explanation / Answer

Change in income for Division B = 17500*(48-50) = -35000

Change in income for Division A = 17500(52-48)= 70,000

Total change in income for Hibiscus Company = 70000-35000 = 35000

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