Question
In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y
In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits: |
Case | |||||||||||||||||||||||||||||
A | B | ||||||||||||||||||||||||||||
Division X: | |||||||||||||||||||||||||||||
Capacity in units | 300,000 | 300,000 | |||||||||||||||||||||||||||
Number of units being sold to outside customers | 300,000 | 268,000 | |||||||||||||||||||||||||||
Selling price per unit to outside customers | $70 | $53 | |||||||||||||||||||||||||||
Variable costs per unit | $45 | $25 | |||||||||||||||||||||||||||
Fixed costs per unit (based on capacity) | $12 | $10 | |||||||||||||||||||||||||||
Division Y: | |||||||||||||||||||||||||||||
Number of units needed for production | 32,000 | 32,000 | |||||||||||||||||||||||||||
Purchase price per unit now being paid to an outside supplier | $65 | $52 | |||||||||||||||||||||||||||
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