Tide Company has two divisions, Division A and Division B. Division A currently sells comOponents to Division B for \(\$ 10\) per unit. The cost of Division A to produce a component follows:

Division A typically sells 40,000 components to Division B and 40,000 components to external customers. The manager of Division B is considering buying components from an outside supplier that submitted a bid of \(\$ 8\).

a. Calculate the cost savings to Division B if the manager decides to purchase the component externally.

b. Assume Division A cannot replace lost sales in the short run if Division B purchases components externally. How does the fixed cost per unit change?

c. From the perspective of the corporation as a whole, should Division B purchase the components externally? Explain.

d. What other factors should Division B's management consider in its decision of whether to buy from an outside source?

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Variable cost per unit Fixed cost per unit $5 $2 (based on 100,000 units)