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Exoplex Industries Inc. is a diversified aerospace company, including two operating divisions, Semiconductors and Navigational Systems divisions. Condensed divisional income statements, which involve no intracompany transfers and include a breakdown of expenses into variable and fixed components, are as follows: EXOPLEX INDUSTRIES INC. Divisional Income Statements For the Year Ended December 31, 2016 1 Semiconductors Division Navigational Systems Division Total 2 Sales: 3 2,240 units @ $396 per unit $887,040.00 $887,040.00 4 3,675 units @ $590 per unit $2,168,250.00 2,168,250.00 5 $887,040.00 $2,168,250.00 $3,055,290.00 6 Expenses: 7 Variable: 8 2,240 units @ $232 per unit $519,680.00 $519,680.00 9 3,675 units @ $472* per unit $1,734,600.00 1,734,600.00 10 Fixed 220,000.00 325,000.00 545,000.00 11 Total expenses $739,680.00 $2,059,600.00 $2,799,280.00 12 Income from operations $147,360.00 $108,650.00 $256,010.00 *$432 of the $472 per unit represents materials costs, and the remaining $40 per unit represents other variable conversion expenses incurred within the Navigational Systems Division. The Semiconductors Division is presently producing 2,240 units out of a total capacity of 2,820 units. Materials used in producing the Navigational Systems Divisions product are currently purchased from outside suppliers at a price of $432 per unit. The Semiconductors Division is able to produce the components used by the Navigational Systems Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses. Required: 1. Would the market price of $432 per unit be an appropriate transfer price for Exoplex Industries Inc.? Explain. 2. If the Navigational Systems Division purchases 580 units from the Semiconductors Division, rather than externally, at a negotiated transfer price of $310 per unit, how much would the income from operations of each division and total company income from operations increase? 3. Prepare condensed divisional income statements for Exoplex Industries Inc. based on the data in Requirement 2. 4. If a transfer price of $340 per unit is negotiated, how much would the income from operations of each division and total company income from operations increase?

Exoplex Industries Inc. is a diversified aerospace company, including two operating divisions, Semiconductors and Navigational Systems divisions. Condensed divisional income statements, which involve no intracompany transfers and include a breakdown of expenses into variable and fixed components, are as follows:

EXOPLEX INDUSTRIES INC.

Divisional Income Statements

For the Year Ended December 31, 2016

1		Semiconductors Division	Navigational Systems Division	Total
2	Sales:
3	2,240 units @ $396 per unit	$887,040.00		$887,040.00
4	3,675 units @ $590 per unit		$2,168,250.00	2,168,250.00
5		$887,040.00	$2,168,250.00	$3,055,290.00
6	Expenses:
7	Variable:
8	2,240 units @ $232 per unit	$519,680.00		$519,680.00
9	3,675 units @ $472* per unit		$1,734,600.00	1,734,600.00
10	Fixed	220,000.00	325,000.00	545,000.00
11	Total expenses	$739,680.00	$2,059,600.00	$2,799,280.00
12	Income from operations	$147,360.00	$108,650.00	$256,010.00

*$432 of the $472 per unit represents materials costs, and the remaining $40 per unit represents other variable conversion expenses incurred within the Navigational Systems Division.

The Semiconductors Division is presently producing 2,240 units out of a total capacity of 2,820 units. Materials used in producing the Navigational Systems Divisions product are currently purchased from outside suppliers at a price of $432 per unit. The Semiconductors Division is able to produce the components used by the Navigational Systems Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

	Required:
1.	Would the market price of $432 per unit be an appropriate transfer price for Exoplex Industries Inc.? Explain.
2.	If the Navigational Systems Division purchases 580 units from the Semiconductors Division, rather than externally, at a negotiated transfer price of $310 per unit, how much would the income from operations of each division and total company income from operations increase?
3.	Prepare condensed divisional income statements for Exoplex Industries Inc. based on the data in Requirement 2.
4.	If a transfer price of $340 per unit is negotiated, how much would the income from operations of each division and total company income from operations increase?

Starting Questions

1. Would the market price of $432 per unit be an appropriate transfer price for Exoplex Industries Inc.? Explain.

. When exists in the supplying division (the Semiconductors Division), the use of the market price approach may not lead to the maximization of total company income.

2. If the Navigational Systems Division purchases 580 units from the Semiconductors Division, rather than externally, at a negotiated transfer price of $310 per unit, how much would the income from operations of each division and total company income from operations increase?

The Semiconductors Divisions income from operations would increase by

The Navigational Systems Divisions income from operations would increase by

Exoplex Industries Inc.s total income from operations would increase by

Divisional Income Statements

3. Prepare condensed divisional income statements for Exoplex Industries Inc. based on the data previously determined.

EXOPLEX INDUSTRIES INC.

Divisional Income Statements

For the Year Ended December 31, 2016

1		Semiconductors	Navigational Systems	Total
2	Sales:
3	2,240 units
4	580 units
5	3,675 units
6
7	Expenses:
8	Variable:
9	2,820 units
10	580 units
11	3,095 units
12	Fixed
13	Total expenses
14	Income from operations

Final Question

4. If a transfer price of $340 per unit is negotiated, how much would the income from operations of each division and total company income from operations increase?

The Semiconductors Divisions income from operations would increase by

The Navigational Systems Divisions income from operations would increase by

Exoplex Industries Inc.s total income from operations would increase by

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