Question: The materials used by the Multinomah Division of Isbister Company
The materials used by the Multinomah Division of Isbister Company are currently purchased from outside suppliers at $ 90 per unit. These same materials are produced by the Pembroke Division. The Pembroke Division can produce the materials needed by the Multinomah Division at a variable cost of $ 75 per unit. The division is currently producing 120,000 units and has capacity of 150,000 units. The two divisions have recently negotiated a transfer price of $ 82 per unit for 15,000 units. By how much will each division’s income increase as a result of this transfer?
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