Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market:

Selling price per unit (on the outside market)	$	60
Variable cost per unit	$	44
Fixed costs per unit (based on capacity)	$	8
Capacity in units		20,000

Division B could use Division As product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes. Also assume that the companys divisional managers are evaluated based on their divisions profits and that Division A is currently selling 15,000 units on the outside market. If the managers of the two divisions do not agree on a transfer price and Division B purchases 4,000 component parts from an outside supplier, what would be the effect on the companys profits?

Multiple Choice

• Profits would decrease by $56,000

• Profits would decrease by $24,000

• Profits would decrease by $64,000

• Profits would decrease by $32,000