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Transfer Pricing

The materials used by the Winston$-$Salem Division of Fox Company are currently purchased from outside suppliers at $$82$ per unit. These same materials are produced by Fox's Flagstaff Division. The Flagstaff Division can produce the materials needed by the Winston$-$Salem Division at a variable cost of $$34$ per unit. The division is currently producing $98,000$ units and has capacity of $140,000$ units. The two divisions have recently negotiated a transfer price of $$49$ per unit for $42,000$ units.

By how much will each division's income increase as a result of this transfer?

Winston$-$Salem Division

$

Flagstaff Division

$ $$

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Multiply the units transferred by the difference between the transfer price and the variable cost per unit $($supplying company$)$ or the market price and the transfer price $($purchasing company$).$

Learning Objective $5.$

rogress: $\frac{10}{10}$ items

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