Office Systems Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Systems Corporation are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's
operations in the Computer Chip Division: Selling price per chip $50 Variable costs per chip $20 Fixed production costs $60,000 Fixed SG&A costs $90,000 Monthly capacity 10,000 chips External sales 6,000 chips Internal sales 0 chips Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month. Refer to Office Systems Corporation. Two possible transfer prices (for 4,000 units) are under consideration by the two divisions: $35 and $40 . Corporate profits would be ____ if $35 is selected as the transfer price rather than $40.
a. $20,000 larger
b. $40,000 larger
c. $20,000 smaller
d. the same
D
Transfer prices are for internal use only; external profits are not affected.
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