The Van Division of Travel Vans Corporation has offered to purchase 180,000 wheels from the Wheel Division for \($76\) per wheel. At a normal volume of 500,000 wheels per year, production costs per wheel for the Wheel Division are as follows:

The Wheel Division has been selling 500,000 wheels per year to outside buyers at \($106\) each. Capacity is 700,000 wheels per year. The Van Division has been buying wheels from outside suppliers at \($100\) per wheel.

Required

a. Should the Wheel Division manager accept the offer? Show computations.

b. From the standpoint of the company, will the internal sale be beneficial?

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Direct materials Direct labor... Variable overhead.. Fixed overhead... Total $26 20 12 30 $88