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Division S of Goody Company makes a part with the following characteristics: Product capacity 50,000 units Selling price on the outside market $20 Variable costs
Division S of Goody Company makes a part with the following characteristics:
Product capacity 50,000 units
Selling price on the outside market $20
Variable costs per unit $12
Fixed costs per unit $3
Division B, another division in the same company, presently is purchasing 10,000 units of a similar part of each period from an outside supplier, but would like to start purchasing from Division S. Division B is now paying a price of $18 per unit to the outside supplier.
- Suppose that Division S has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outsiders. If Division S refuses to accept the $18 price from Division B, what would be overall impact on the company's profit as a whole? Use plus "+" or minus "-" to denote impact.
- Suppose that Division S can sell that it can produce to outside customers at its regular selling price. If Division S sells to Division B at a price of $18 per unit, what would be the impact on the company's profit as a whole? Use plus "+" or minus "-" to denote impact.
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