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A company has two divisions and evaluates management using return on investment. Division 1 currently makes a part that it sells to Division 2 and
A company has two divisions and evaluates management using return on investment. Division 1 currently makes a part that it sells to Division 2 and to outside customers. The selling price to Division 2 is $25, variable cost is $18, and fixed costs are $80,000. Division 1 wants to increase the selling price to $28. Division 2 can purchase the same part from an outside supplier for $26; however, if Division 2 gets the parts from the outside supplier, Division 1 will end up with excess capicity. From an overall company perspective: Multiple Choice 0 Division 1 should continue to do business with Division 2 and charge $28 per part. 0 Divison 1 should continue to do business with Division 2 and charge $25 per part. 0 Division 1 should continue to do business with Division 2 because Division 1's variable cost per part is only $18. 0 Division 2 should do business with the outside supplier. 0 Division 2 should split its business between Division 1 and the outside supplier
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