Question
Division A makes a part with the following characteristics: Production capacity in units 31,100 units Selling price to outside customers $ 25 Variable cost per
Division A makes a part with the following characteristics:
Production capacity in units | 31,100 | units | |
Selling price to outside customers | $ | 25 | |
Variable cost per unit | $ | 19 | |
Total fixed costs | $ | 107,200 | |
Division B, another division of the same company, would like to purchase 16,500 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $22 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 $22 price internally and Division B continues to buy from the outside supplier, the company as a whole will be:
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