National Company Has Two Divisions,Walton and Iowa

Essay

National Company has two divisions,Walton and Iowa.Walton produces an item that Iowa could use in its production.Iowa currently is purchasing 50,000 units from an outside supplier for $9.10 per unit.Walton has sufficient capacity and has variable costs of $5.25 per unit.The full cost to manufacture the unit is $7.70.Walton currently sells 450,000 units at a selling price of $9.80 per unit.
a.What will be the effect on National Company's operating profit if the transfer is made internally?
b.What will be the change in profits for Walton if the transfer price is $7 per unit?
c.What will be the change in profits for Iowa if the transfer price is $7 per unit?