Assume that Division A has has a product that can be sold either to Division B of the same company or to outside customers. The manager of both division are evaluated based on their own divisions return on investment. The manager are free to decide if they will participate in any internal transfers.

Division A

Capacity in units = 300,000

Number of units now being sold out to outside customers = 300,000

Selling price per unit on the outside market = $41

Variable costs per unit = $19

Fixed costs per unit = $12

Division B

# of units needed annually = 10,000

Purchase price now being paid to outside supplier = $38

Division A can avoid $6 per unit in variable costs on any sales to Division B. Assume Division A offers to sell 100,000 units to Division B for $36 per unit and that Division B refuses this price. What will be the impact on company profit compared to the profit if the offer was accepted?

+$200,000

+$100,000

+$300,000

-$300,000

-$200,000