Question

Birrell Scientific Inc. manufactures electronic products, with two operating divisions, the GPS Systems and Communication Systems divisions. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows:

Birrell Scientific Inc. Divisional Income Statements For the Year Ended December 31, 20Y5
	GPS Systems Division			Communication Systems Division			Total
Sales:
95,000 units @ $60 per unit	$5,700,000						$5,700,000
140,000 units @ $115 per unit				$16,100,000			16,100,000
	$5,700,000			$16,100,000			$21,800,000
Expenses:
Variable:
95,000 units @ $42 per unit	$(3,990,000)						$(3,990,000)
140,000 units @ $90 per unit*				$(12,600,000)			(12,600,000)
Fixed	250,000			(500,000)			(750,000)
Total expenses	$(4,240,000)			$(13,100,000)			$(17,340,000)
Operating income	$1,460,000			$3,000,000			$4,460,000

*$60 of the $90 per unit represents materials costs, and the remaining $30 per unit represents other variable conversion expenses incurred within the Communication Systems Division.

The GPS Systems Division is presently producing 95,000 units out of a total capacity of 150,000 units. Materials used in producing the Communication Systems Division's product are currently purchased from outside suppliers at a price of $60 per unit. The GPS Systems Division is able to produce the materials used by the Communication Systems Division at a variable cost of $42 per unit. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

If the Communication Systems Division purchases 25,000 units from the GPS Systems Division, rather than externally, at a negotiated transfer price of $52 per unit, how much would the operating income of each division and the total company operating income increase?

The GPS Systems Division's operating income would increase by
$____

Answer 1