Reference no: EM133003309

Question - Europa Inc. has two division, A and B, which manufacture expensive bicycles. Division A produces the bicycle frame, and division B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the final product. Each division has been designated as a profit center. Currently the subassembly product (the frame) is purchased from an external vendor for $150. If there is a transfer between the two division, the transfer price for the subassembly product should be set at the market price. Currently division A is selling 1,200 intermediate products on the market. The other data available for the two divisions are:

Number of final products sold (bicycle) by division B 900 units

Production capacity division A 2,000 units

Selling price for the final product (bicycle) $300

Market price for intermediate product $160

Incremental cost per unit for completion in Division B $110

Incremental variable cost per unit in division A $90

If the division A production goes beyond the current 1,200 units, two new worker will be employed at a monthly salary of $2,250 per person.

Required - If the transfer takes place, what is the variation in total monthly profit for the company?