Sell Division makes part JS13 with the following characteristics: Buy Division, another division of the same company,
Question:
Sell Division makes part JS13 with the following characteristics:
Buy Division, another division of the same company, wants to purchase 5,000 units of part OC53 each period from Sell Division. Parts JS13 and OC53 have the same variable cost per unit for Sell Division. Producing Part OC53 will not change Sell Division’s total fixed costs. Buy Division is now purchasing Part OCS3 from an outside supplier at a price of \($29\) each. Hence, Buy Division won’t pay more than \($29\) to Sell Division for the same product.
Suppose that Sell Division is producing at capacity and would have to forego some of its current sales to outside customers to handle all of Buy Division’s needs for Part OC53.
Required
If Sell Division accepts the \($29\) price to produce and sell Part OC53 to Buy Division, what will be the impact on the company as a whole?
Step by Step Answer:
Managerial Accounting For Undergraduates
ISBN: 9780357499948
2nd Edition
Authors: James Wallace, Scott Hobson, Theodore Christensen