Division A makes a part with the following
characteristics:

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Question: Division A makes a part with the following characteristics: Production capacity in units…
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Production capacity in
units
5,000 units
Selling price to outside
customers
$ 48
Variable cost per unit $ 32
Total fixed costs $ 29,000

Division B, another division of the same company, would like to
purchase 1,800 units of the part each period from Division A.
Division B is now purchasing these parts from an outside supplier
at a price of $45.4 each.

Suppose that Division A has ample idle capacity to handle all of
Division B’s needs without any increase in fixed costs and without
cutting into sales to outside customers. If Division A refuses to
accept the $45.4 price internally and Division B continues to buy
from the outside supplier, the company as a whole will be:

Better off by 48,240 each period

Worse off by 24,120 each period

Worse off by 18,090 each period

Worse off by 12,060 each period

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