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Division A manufactures components for plasma TVs. The components can be sold either to Division B of the same company or to outside customers. Last
Division A manufactures components for plasma TVs. The components can be sold either to Division B of the same company or to outside customers. Last year, the following activity was recorded in Division A: Sales to Division B were at the same price as sales to outside customers. The components purchased by Division B were used in a TV manufactured by that division. Division B incurred S900 in additional variable cost per TV and then sold the TVs for $1, 800 each. Prepare income statements for last year for Division A, Division B, and the company as a whole. Assume that Division As manufacturing capacity is 20,000 components per year. Next year, Division B wants to purchase 5,000 components from Division A, rather than only 4,000 components, as it did last year. Components of this type are not available from outside sources. From the standpoint of the company as a whole, should Division A sell the 1,000 additional components to Division B, or should it continue to sell them to outside customers? Sell the 1,000 additional tubes to Division B. Continue to sell the tubes to outside customers
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