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Phoenix Incorporated, a cellular communication company, has multiple business units, organized as divisions. Each division's management is compensated based on the division's operating income. Division A currently purchases cellular equipment from outside markets and uses it to produce communication systems. Division B produces similar cellular equipment that it sells to outside customers $-$ but not to Division A at this time. Division A$\text{'}$s manager approaches Division $B\text{'}$s manager with a proposal to buy the equipment from Division B$.$ If it produces the cellular equipment that Division A desires, Division $B$ will incur variable manufacturing costs of $$60$ per unit.

Relevant Information about Division B

Sells $97,500$ units of equipment to outside customers at $$130$ per unit Operating capacity is currently $80\%$; the division can operate at $100\%$ Variable manufacturing costs are $$70$ per unit

Variable marketing costs are $$8$ per unit

Fixed manufacturing costs are $$960,000$

Income per Unit for Division A $($assuming parts purchased externally, not internally from division B$)$

$\backslash$table$[[$Sales revenue,$$320,],[$Manufacturing costs:,$80,],[$Cellular equipment,$10,],[$other materials,$40,],[$Fixed costs,,$130],[$Total manufacturing costs,$190,],[$Gross margin,$35,],[$Marketing costs:,$15,],[,$ Variable,,$],[,$ Fixed,,$],[$Total marketing costs,$140,],[$Operating income per unit,,$]]$

Required:

Division A proposes to buy $48,750$ units from Division B at $$75$ per unit. What would be the effect of accepting this proposal on Division B$\text{'}$s operating income? What would be the effect on the operating income of Phoenix Incorporated as a whole?

Now suppose Division A could purchase from multiple suppliers and would accept partialshipment from Division B$.$ How many units should Division B sell to Division A at $$75$ per unit, if any? What would be the effect on Division B$\text{'}$s operating income? What would be the effect on the operating income of Phoenix Incorporated as a whole?

What is the range of transfer prices over which the divisional managers might negotiate a final transfer price?

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Division A proposes to buy $48,750$ units from Division B at $$75$ per unit. What would be the effect of accepting this proposal on Division B$\text{'}$s operating income? What would be the effect on the operating income of Phoenix

Incorporated.as a whole?

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