200. The sales, income from operations, and invested assets for each division of Wren Company are as follows:
Sales Income from
Operations Invested
Assets
Division C$5,000,000$630,000$4,000,000
Division D6,800,000760,0003,900,000
Division E3,750,000750,0007,500,000
201. Materials used by Best Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit.
(a)If a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would Best Bread Company's total income from operations increase?
(b)Assuming transfer price of $25, how much would the income from operations of Division A increase?
(c)Assuming transfer price of $25, how much would the income from operations of Division B increase?
(d)If the negotiated price approach is used, what would be the range of acceptable transfer prices?
202. The sales, income from operations, and invested assets for each division of Marcus Company are as follows:
Sales Income from
Operations Invested
Assets
Division X$5,000,000$645,000$4,100,000
Division Y6,800,000777,0004,000,000
Division Z3,750,000760,0007,600,000
Management has established a minimum rate of return for invested assets of 10%.