Reference no: EM132547694

The Fabrication Division of Hawking Company manufactures an antenna component used by the Electronics Division. This antenna is also sold to external customers for $35 per unit. Variable costs for the antenna are $17 per unit and fixed cost is $7 per unit. Hawking Company's executives would like for the Fabrication Division to transfer 8,000 units to the Electronics Division at a price of $25 per unit.

Question i. Assume that Fabrication Department is operating at full capacity. Explain whether it should accept the transfer price proposed by management.

Question ii. Identify the minimum transfer price that the Fabrication Division will accept and explain why.

Now, assume that the Fabrication Division has enough excess capacity to accommodate the request. Answer the following question (iii) and (iv):

Question iii. Explain whether the Fabrication Division should accept the $25 transfer price proposed by management.

Question iv. Calculate the effect on Fabrication Division's net income if it accepts the $25 transfer price.