Avery Corporation has two divisions, A and B, which are both organized as profit centers; Division A produces and sells widgets to Division B and to outside customers. Division A has total costs of $35, $20 of which are variable. Division A is operating significantly below capacity and sells the widgets for $50. Division B has received an offer from an outsider vendor to supply all the widgets it needs (20,000 widgets) at a cost of $45. The manager of Division B is considering the offer but wants to approach Division A first.

20.

value: 1.50 points

Required information

What would be the profit impact to Avery Corporation as a whole if Division B purchased the 20,000 widgets it needs from the outside vendor for $45?

no change in profit to Avery.

$100,000 increase in profits.

$100,000 decrease in profits.

$500,000 decrease in profits.

21.

value: 1.50 points

Required information

What is the minimum transfer price from Division A to Division B?

$20

$35

$45

$50