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Blue Co has two divisions, A and B. Division A makes a component for air conditioning units which it can only sell to Division B.
Blue Co has two divisions, A and B. Division A makes a component for air conditioning units which it can only sell to Division B. It has no other outlet for sales.
Current information relating to Division A is as follows:
Marginal cost per unit | 100 |
Transfer price of the component | 165 |
Total production and sales of the component each year | 2,200 units |
Specific fixed costs of Division A per year | 10,000 |
Green Co has offered to sell the component to Division B for 140 per unit.
If Division B accepts this offer, Division A will be closed. If Division B accepts Green Cos offer, what will be the impact on profits per year for the group as a whole?
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