Airstream Inc., makes sports equipment and consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A \& B follows: Required: 1. Will the company benefit if A buys outside the company? Assume B cannot sell those materials elsewhere. 2. Assme B can save $215,000 in FC if it does not make the materials for A. Should A now buy from a 3rd party? 3. Assume the facts in #1 above except the outside market price drops by $15. Should A buy outside now? 4. Asume B can sell 10,000 units outside the company for $210 with variable marketing costs of $10. Should B sell outside or to A? Explain. Solution: Question 1 Cost to buy internally Cost to buy externally Net benefit or cost to buy externally Question 2 Cost to buy internally Cost to buy externally Cost to buy externally Savings Net benefit or cost to buy externally Question 3 Units Price per unit Total cost Cost to buy internally Cost to buy externally Net benefit or cost to buy externally Question 4 Units Price per unit Total cost B's external price Less variable manufacturing costs Less variable marketing costs B's CM from external sales Less: Net costs to buy externally. Airstream Inc., makes sports equipment and consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A \& B follows: Required: 1. Will the company benefit if A buys outside the company? Assume B cannot sell those materials elsewhere. 2. Assme B can save $215,000 in FC if it does not make the materials for A. Should A now buy from a 3rd party? 3. Assume the facts in #1 above except the outside market price drops by $15. Should A buy outside now? 4. Asume B can sell 10,000 units outside the company for $210 with variable marketing costs of $10. Should B sell outside or to A? Explain. Solution: Question 1 Cost to buy internally Cost to buy externally Net benefit or cost to buy externally Question 2 Cost to buy internally Cost to buy externally Cost to buy externally Savings Net benefit or cost to buy externally Question 3 Units Price per unit Total cost Cost to buy internally Cost to buy externally Net benefit or cost to buy externally Question 4 Units Price per unit Total cost B's external price Less variable manufacturing costs Less variable marketing costs B's CM from external sales Less: Net costs to buy externally