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Division A makes a part with the following characteristics: Production capacity in units Selling price to outside customers (per unit) Variable cost per unit Total
Division A makes a part with the following characteristics: Production capacity in units Selling price to outside customers (per unit) Variable cost per unit Total fixed costs 15,000 $25 $60,000 Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is currently purchasing these parts from an outside supplier at a price of $24 each. Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division B continues to purchase parts from an outside supplier rather than from Division A, what will be the effect on the operating income of the company as a whole? o a. Higher by $5,000 each period O b. Lower by $30,000 each period. C.Lower by $5,000 each period. O d. None of the answers provided. o e. Higher by $30,000 each period
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