GQV has two divisions, R and Q. Division R, which has significant surplus capacity, makes two components, the R1 and the R2. Both products earn Division R the same contribution, but R1 is sold externally into an imperfect market whilst R2 is transferred to Division Q at $180 per unit for conversion into product SS1. Each product SS1 requires one R2-component. The production cost of an R2-component is as follows: R2-component: $ Materials 50 Labour and other variable overhead 80 Fixed overhead 40 170 Division Q has just signed a contract with an external supplier which will supply the division with R2-components at a price of $136 per unit. What will the effect of Division Q's decision be on the profits earned by (i) Division R and (ii) GQV as a whole? Solution 

A.(i) Increase, (ii) decrease. 

B.(i) Decrease, (ii) decrease.

C.(i) No change, (ii) increase. 

D.(i) Decrease, (ii) no change