Exercise 10-23

Division As cost accounting records show that the cost of its product is $150 per unit$120 in variable costs and $30 in fixed costs. The market price of the product, $161, barely covers Division As cost of production plus its selling and administrative costs. Division A has a maximum capacity of 114,100 units; it is currently producing and selling 76,700 units. Division B makes a product that uses Division As product and would like to purchase 13,000 units from Division A for $153. With $43 additional variable costs, Division B produces and sells the product for $291. 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 13,000 units to Division B for $153 each, and Division B produces and sells 13,000 units for $291.
b.		Division A does not sell to Division B. Division B purchases 13,000 units from an external supplier at $161 each and produces and sells 13,000 units for $291.

	Increase in corporate income
a.	$
b.	$