Question
Division One of Loverei Company is currently operating at 70% of capacity.It produces a single product and sells all its production to outside customers for
Division One of Loverei Company is currently operating at 70% of capacity.It produces a single product and sells all its production to outside customers for 70 per unit.Variable costs is 30 per unit and fixed costs is 20 per unit at the current production level.
Division Two, which currently buys the same product from an outside supplier for 65 per unit, would like to buy the product from Division One.
Division One will use one-half of its idle capacity if it decides to provide the requirements of Division Two.
What is minimum price that Division One should charge Division Two for this product?
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