Question
Division 1 of Hindmarsh's Engineering Co., expects the following results next year, all from sales to outsiders: Sales (10,000 units $50) $500,000 Variable costs $200,000
Division 1 of Hindmarsh's Engineering Co., expects the following results next year, all from sales to outsiders:
Sales (10,000 units $50) $500,000
Variable costs $200,000
Contribution margin $300,000
Fixed costs $100,000 Profit $200,000
Division 1 has a 12,000 unit capacity. Division 2 of the company is introducing a new product. The manager of Division 2 expects to sell 3,000 units of the new product at $75 per unit. The product requires a unit of Division 1's product, which Division 2 would modify at a variable cost of $50 per unit. Division 2 would not take fewer than 3,000 units. From the point of view of the company as a whole, what will the effect on profits be if the transfer takes place
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