Question
Chipper Division of Acme Corp. sells 80,000 units of part Z-25 to the outside market. Part Z-25 sells for $40, has a variable cost of
Chipper Division of Acme Corp. sells 80,000 units of part Z-25 to the outside market. Part Z-25 sells for $40, has a variable cost of $22, and a fixed cost per unit of $10. Chipper has a capacity to produce 100,000 units per period. Jones Division currently purchases 10,000 units of part Z-25 from Chipper for $40. Jones has been approached by an outside supplier willing to supply the parts for $36. What is the effect on Acme's overall profit if Chipper REFUSES the outside price and Jones decides to buy outside?
| No change. | |
| $140,000 decrease in Acme profits. | |
| $80,000 decrease in Acme profits. | |
| $40,000 increase in Acme profits.
|
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