Bill's Computer Parts has two decentralized divisions,Hardware and Pre-Fab.Pre-Fab has always purchased certain units from Hardware at $230 per unit.Because Hardware plans to raise the price to $260 per unit,Pre-Fab desires to purchase these units from outside suppliers for $230 per unit.Hardware's costs follow: variable costs per unit,$200;annual fixed costs,$30,000.Annual production of these units for Pre-Fab is 1,500 units.If Pre-Fab buys from an outside supplier,the facilities Hardware uses to manufacture these units would remain idle.
Required:
What would be the result if Bill's Computer Parts' management enforces a transfer price of $260 per unit between Hardware and Pre-Fab?

Question

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The Answer of Bill's Computer Parts has two decentralized divisions,Hardware and Pre-Fab.Pre-Fab has always purchased certain units from Hardware at $230 per unit.Because Hardware plans to raise the price to $260 per unit,Pre-Fab desires to purchase these units from outside suppliers for $230 per unit.Hardware's costs follow: variable costs per unit,$200;annual fixed costs,$30,000.Annual production of these units for Pre-Fab is 1,500 units.If Pre-Fab buys from an outside supplier,the facilities Hardware uses to manufacture these units would remain idle.
Required:
What would be the result if Bill's Computer Parts' management enforces a transfer price of $260 per unit between Hardware and Pre-Fab?

Bill's Computer Parts Has Two Decentralized Divisions,Hardware and Pre-Fab