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What will be the effect on overall company profits

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Question - The machining division of ITA International has a capacity of 2,150 units. Its sales and cost data are:

Selling price per unit $75

Variable manufacturing costs per unit 20

Variable selling costs per unit 7

Total fixed manufacturing overhead 187,100

The machining division is currently selling 1,950 units to outside customers, and the assembly division of ITA International wants to purchase 400 units from machining. If the transaction takes place, the variable selling costs per unit on the units transferred to assembly will be $0/unit, and not $7/unit. If the assembly division is currently buying from an outside supplier at $71 per unit, what will be the effect on overall company profits if internal sales for 400 units take place at the optimum transfer price?

Reference no: EM133043642

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