Intermediate. X plc, a manufacturing company, has two divisions: Division A and Division B. Division A produces one type of product, ProdX, which it transfers to Division B and also sells externally. Division B has been approached by another company which has offered to supply 2500 units of ProdX for £35 each.

The following details for Division A are available:

If Division B decides to buy from the other company, the impact of the decision on the profits of Division A and X plc, assuming external sales of ProdX cannot be increased, will be:

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Sales revenue Sales to Division B @ 40 per unit 400000 External sales@ 45 per unit 270000 Less: Variable cost @ 22 per unit Fixed costs Profit 352000 100000 218000