Home | Superior Co... Decision on transfer pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $319 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 Instrument Division at a variable cost of $265 per unit. Assume that a transfer price of $303 has been established and that 27,400 units of materials are transferred, with no reduction in the Components Division's current sales. a. How much would Ziegler Inc.'s total operating income increase? b. How much would the Instrument Division's operating income increase? C. How much would the Components Division's operating income increase? d. Any transfer price will cause the total income of the company to increase , as long as the supplier division capacity is used toward making materials for products that are ultimately sold to the outside. Feedback Check My Work a-c. Determine what "difference" should be computed for each part. Is it the difference between the transfer price and variable cost, or the market price and variable cost, or the market price and transfer cost. Then, multiply the difference by the units transferred. d. Consider the effect of setting a transfer price outside the acceptable range.