Refer to the information presented in E10-14. Assume that the Molding Division has enough excess capacity to accommodate the request..

The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $25 per unit. Variable costs for the casing are $12 per unit and fixed cost is $3 per unit. Cotwold executives would like for the Molding Division to transfer 8,000 units to the Assembly Division at a price of $18 per unit.

Required:

1. Explain whether the Molding Division should accept the $18 transfer price proposed by management.

2. Calculate the effect on Molding Division’s net income if it accepts the $18 transfer price.