Exercise 10-23

Division As cost accounting records show that the cost of its product is $154 per unit$115 in variable costs and $39 in fixed costs. The market price of the product, $160, barely covers Division As cost of production plus its selling and administrative costs. Division A has a maximum capacity of 105,800 units; it is currently producing and selling 79,600 units. Division B makes a product that uses Division As product and would like to purchase 10,500 units from Division A for $160. With $40 additional variable costs, Division B produces and sells the product for $239. Division As manager is not happy with Division Bs offer and is refusing to sell.

Calculate the increase in corporate income in the following situations:

a.	Division A sells 10,500 units to Division B for $160 each, and Division B produces and sells 10,500 units for $239.
b.	Division A does not sell to Division B. Division B purchases 10,500 units from an external supplier at $160 each and produces and sells 10,500 units for $239.

Increase in corporate income
a.	$
b.	$