Materials used by the Truck Division of Monumental Motors are currently purchased from outside suppliers at a cost of $260 per unit. However, the same materials are available from the Component Division. The Component Division has unused capacity and can produce the materials needed by the Truck Division at a variable cost of $190 per unit.
a. If a transfer price of $210 per unit is established and 50,000 units of materials are transferred, with no reduction in the Component Division’s current sales, how much would Monumental Motors’ total income from operations increase?
b. How much would the Truck Division’s income from operations increase?
c. How much would the Component Division’s income from operations increase?