Problem - The materials used by the Laramie Division of Barron Company are currently purchased from outside suppliers at $40.00 per unit. These same materials are produced by Barron's Astoria Division. The Astoria Division can produce the materials needed by the Laramie Division at a variable cost of $28.00 per unit. The division is currently producing 80,000 units and has capacity of 100,000 units. The two divisions have recently negotiated a transfer price of $35.00 per unit for 20,000 units.
By how much will each division's income increase as a result of this transfer?