Question
Blade Division of ABC Co. produces hardened steel blades. One-third of the Blades Division's output is sold to the Lawn Products Division of Dana; the
Blade Division of ABC Co. produces hardened steel blades. One-third of the Blades Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. The Blade Division's estimated sales and standard costs data for the fiscal year ending June 30 are as follows:
Lawn Products Outsiders
Sales P15,000 P40,000
Variable costs (10,000) (20,000)
Fixed costs (3,000) (6,000)
Gross margin P2,000 P14,000
Unit sales 10,000 20,000
Lawn Products can buy the blades from an outside supplier at P1.50 each.Assume the Blade Division is now at capacity and sufficient demand exists to sell all production to outsiders at present prices, what is the differential cost (benefit) of selling the all blades to external customers?
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