Question
Division A offers its product to outside markets for $80. It incurs variable costs of $40 per unit and fixed costs of $84,000 per month
Division A offers its product to outside markets for $80. It incurs variable costs of $40 per unit and fixed costs of $84,000 per month based on monthly production of 5,800 units. Division B can acquire the product from an alternate supplier for $82 per unit or from Division A for $80 plus $4 per unit in transportation costs in addition to the transfer price charged by Division A. |
Required: | |
(a) | Assuming that Division A can market all that it produces, which option is best? Why? |
Net Benefit= Per Unit= |
(b) | Assuming that Division A had idle capacity sufficient to cover all of Division B's needs , which option is best? Why? |
Net Benefit= Per Unit= |
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