Final answer:
The transfer of engine units from the Engine Division to the Production Division results in a loss of $2100 per unit. With 26000 units, this equates to a $54,600,000 decrease in revenue for the Engine Division. After accounting for the Production Division's savings, the overall company profit decreases by $6,240,000; however, this result does not match any provided options.
Step-by-step explanation:
To calculate the change in overall company profits resulting from the internal transfer of engine units, we must analyze the costs and savings associated with the transfer. The engine division sells externally at $3150 per unit. For internal sales, the transfer price is $1050. The production division currently buys externally at $3000 per unit. Then, we need to account for the saving on reduced selling expenses of $90 per unit for internal transactions.
First, we calculate the lost revenue for the Engine Division for each unit transferred to the Production Division: $3150 (external sale price) - $1050 (internal transfer price) = $2100 lost per unit. For 26000 units, that's a total loss of $54,600,000. However, this is not the final profit impact on the company, as we have to account for the savings made by the Production Division.
Next, we find the savings per unit for the Production Division: $3000 (external purchase price) - $1050 (internal transfer price) - $90 (savings on selling expenses) = $1860 savings per unit. For 26000 units, the Production Division saves $48,360,000.
Subtracting the loss from the Engine Division from the savings of the Production Division, we get the total change in company profit: $48,360,000 (savings) - $54,600,000 (loss) = decrease of $6,240,000. Hence, the overall company profits will decrease, but this is not one of the provided options, which highlights an inconsistency in the question or provided options.