Materials used by the Layton Company's Division 1 are currently purchased from an outside supplier at $58 per unit. Division 2 is able to supply Division 1 with 20,000 units at a variable cost of $46 per unit. The two divisions have recently negotiated a transfer price of $50 per unit for the 20,000 units.
(a) By how much will each division's income increase as a result of this transfer?
(b) What is the total increase in income for Layton Company?
