Fisching, SA, a Swiss transportation equipment manufacturer, is heavily decentralized. Each division head has full authority on all decisions regarding sales to internal or external customers.

The Uri division has always acquired a certain equipment component from the Thurgau division. The Thurgau division recently acquired specialized equipment that is used primarily to make this component. The Geneva division has informed the Lucerne division that their fixed costs have increased by CHF 15 per unit because of the depreciation charges on the new equipment, so the unit price will be increased to CHF 270. However, the Uri division's management has now decided to purchase the component from outside suppliers at a price of CHF

255. The Thurgau division has supplied the following production cost data for this component:

Annual production of component (all for sale to Uri division) 2,500 units

Thurgaus variable costs per unit CHF 250

Thurgaus fixed costs per unit CHF 10

The company already completed an analysis to determine if it was in its best interest to have Uri purchase 2,500 units from an outside supplier assuming that there are no alternative uses for internal facilities of the Thurgau division.

Purchase costs paid to outside suppliers

637,500

Less:

Savings in variable costs

625,000

Net cost (benefit) to company as a whole

12,500

Requirement:

1. Suppose the Thurgau division could modify the component at an additional variable cost of CHF 18 per unit and sell the 2,500 units to other customers for CHF 280. Then, would the entire company benefit if the Uri division purchased the 2,500 components from outsiders at CHF 255 per unit?