The materials used by the South Division of Eagle Company are currently purchased from outside suppliers at $30 per unit. These same materials are produced by Eagle’s North Division. Operating income assuming no transfers between divisions is $1,200,000 for the North Division and $1,360,000 for the South Division.

The North Division has unused capacity and can produce the materials needed by the South Division at a variable cost of $15 per unit. The two divisions have recently negotiated a transfer price of $22 per unit for 30,000 units.

Based on the agreed upon transfer price, with no reduction in the North Division’s current sales:

a. How much would the North Division’s operating income increase?

b. How much would the South Division’s operating income increase?

c. How much would Eagle Company’s operating income increase?