National Company has two divisions, Walton and lowa. Walton produces an item that lowa could use...

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National Company has two divisions, Walton and lowa. Walton produces an item that lowa could use in its production. Iowa currently is purchasing 51,000 units from an outside supplier for $29 per unit. Walton has sufficient capacity and has variable costs of $14 per unit. The full cost to manufacture the unit is $28. Walton currently sells 470,000 units at a selling price of $33 per unit. Required: a. What will be the effect on National Company's operating profit if the transfer is made internally? b. What will be the change in profits for Walton if the transfer price is $21.00 per unit? c. What will be the change in profits for lowa if the transfer price is $21.00 per unit? National Company has two divisions, Walton and lowa. Walton produces an item that lowa could use in its production. Iowa currently is purchasing 51,000 units from an outside supplier for $29 per unit. Walton has sufficient capacity and has variable costs of $14 per unit. The full cost to manufacture the unit is $28. Walton currently sells 470,000 units at a selling price of $33 per unit. Required: a. What will be the effect on National Company's operating profit if the transfer is made internally? b. What will be the change in profits for Walton if the transfer price is $21.00 per unit? c. What will be the change in profits for lowa if the transfer price is $21.00 per unit?

Answer rating: 100% (QA)

a To determine the effect on National Companys operating profit if the transfer is made internally we need to compare the cost of purchasing from the ... View the full answer