Question: The materials used by the North Division of Horton Company
The materials used by the North Division of Horton Company are currently purchased from outside suppliers at $ 60 per unit. These same materials are produced by Horton’s South Division. The South Division can produce the materials needed by the North Division at a variable cost of $ 42 per unit. The division is currently producing 200,000 units and has capacity of 250,000 units. The two divisions have recently negotiated a transfer price of $ 52 per unit for 30,000 units. By how much will each division’s income increase as a result of this transfer?
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