Electronic components used by the Engine Division of Armstrong Manufacturing are currently purchased from outside suppliers at a cost of $200 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Engine Division at a variable cost of $165 per unit.
a. If a transfer price of $180 per unit is established and 35,000 units of materials are transferred, with no reduction in the Components Division’s current sales, how much would Armstrong Manufacturing’s total income from operations increase?
b. How much would the Engine Division’s income from operations increase?
c. How much would the Components Division’s income from operations increase?