Question
Division A makes a part with the following characteristics: Production capacity in units 31,000 units Selling price to outside customers $ 19 Variable cost per
Division A makes a part with the following characteristics:
Production capacity in units | 31,000 | units |
---|---|---|
Selling price to outside customers | $ 19 | |
Variable cost per unit | $ 13 | |
Total fixed costs | $ 108,600 |
Division B, another division of the same company, would like to purchase 18,900 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $15 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 A refuses to accept the $15 price internally and Division B continues to buy from the outside supplier, the company as a whole will be:
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