Problem:
Rapid Industries has multiple divisions. One division, Iron Products, makes a component that another division, Austin, is currently purchasing on the open market. Iron Products currently has a capacity to produce 490,000 components at a variable cost of $5.50 and a full cost of $9.00. Iron Products has outside sales of 453,000 components at a price of $12.50 per unit. Austin currently purchases 45,000 units from an outside supplier at a price of $11.50 per unit. Assume that Austin desires to use a single supplier for its component
Requirement:
Question 1: What will be the effect on Rapid Industries' operating profit if the transfer is made internally? Assume the 45,000 units Austin needs are either purchased 100% internally or 100% externally.
Question 2: What is the minimum transfer price?
Question 3: What is the maximum transfer price?
Note: Please provide through step by step calculations.