Question
Division X makes a part with the following characteristics: Production capacity 27,500 units selling price to outside customers $23 variable cost per unit $16 Fixed
Division X makes a part with the following characteristics:
Production capacity 27,500 units
selling price to outside customers $23
variable cost per unit $16
Fixed cost, total $102,500
Division Y of the same company would like to purchase 10,025 units each period from Division X. Division Y now purchase the part from an outside supplier at a price of $22 each. Suppose Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division X refuses to accept the $22 price internally and Division Y continues to buy from the outside supplier, the company as a whole will be.
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