National Industries is a diversified corporation with separate and distinct operating divisions. Each division's performance is evaluated on the basis of total dollar profits and return on division investment.
The WindAir sDivision manufactures and sells air conditioners. The coming year's budgeted income statement, based on a sales volume of 15,000 units, is as follows:

WindAir's division manager believes sales can be increased if the unit sales price is reduced. A market research study, conducted by an independent firm at the request of the manager, indicates that a 5% reduction in the sales price ($20) will increase sales volume 16%, or 2,400 units. WindAir has sufficient production capacity to manage this increased volume with no increase in fixed cost.
At the present time, WindAir uses a compressor in its air conditioners, which it purchases from an outside supplier at a cost of $70 each. The division manager of WindAir has approached the manager of the Compressor Division regarding the sale of compressors to WindAir. The Compressor Division currently manufactures a compressor that is similar to the one used by WindAir and sells it exclusively to outside firms. Specifications for the WindAir compressor are slightly different. They would reduce the Compressor Division's raw materials cost by $1.50 per unit. In addition, the Compressor Division would not incur any variable marketing cost for the units sold to WindAir. The manager of WindAir wants all compressors it uses to come from one supplier and has offered to pay the Compressor Division $50 for each unit.
The Compressor Division has the capacity to produce 75,000 units. The coming year's budgeted income statement for the Compressor Division, shown below, is based on a sales volume of 64,000 units, without considering WindAir's proposal. It is as follows:

Required:
(1) Compute the estimated result if the WindAir Division reduces its sales price by 5%, even if it cannot acquire the compressors internally at $50 each.
(2) Compute the estimated effect on the Compressor Division, from its own viewpoint, if the 17,400 units are supplied to WindAir at $50 each.
(3) Determine if it is in the best interests of National Industries for the Compressor Division to supply the 17,400 units to WindAir Division at $50 each.

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WindAir Division Budgeted Income Statement For the Year 20A Per Unit Total $400 6,000.000 Sales revenue. Manufacturing costs: CompresSor Other raw materials... Direct labor.... Variable factory overhead Fixed factory overhead $ 70 $1,050,000 555,000 450,000 675,000 480,000 $214 $3,210,000 $186 2 790,000 37 30 45 32 Total manufacturing cost Gross profit Commercial expenses: Variable marketing Fixed marketing Fixed administrative... S 18 S 270,000 285,000 38 570,000 $ 75 $1125,000 $111 $1665,000 19 Total commercial expense. Income before income tax . Compressor Division Budgeted Income Statement For the Year 20A Per Unit Total S100 $6,400,000 Sales revenue Manufacturing costs Raw materials Direct labor Variable factory overhead Fixed factory overhead $ 12 768,000 512,000 640,000 11704,000 Total manufacturing $ 41 $2,624,000 $59 $3,776,000 Gross profit Commercial expenses Variable marketing Fixed marketing Fixed administrative $ 6 384,000 256,000 Total commercial e Income before income tax S17 S1,088,000 $42 $2,688,000 xpense