Internal or External Acquisitions:

No Opportunity Costs

The Van Division of MotoCar Corporation has offered to purchase 180,000 wheels from the Wheel Division for $43 per wheel. At a normal volume of 500,000 wheels per year, production costs per wheel for the Wheel Division are as follows:

Direct materials$14Direct labor10Variable overhead7Fixed overhead17Total$48

The Wheel Division has been selling 500,000 wheels per year to outside buyers at $58 each. Capacity is 700,000 wheels per year. The Van Division has been buying wheels from outside suppliers at $56 per wheel.

(a) Should the Wheel Division manager accept the offer?

Calculate the net benefit (or cost) to the Wheel Division of accepting the offer from the Van Division.

$Answer

per wheel

(b) From the standpoint of the company, will the internal sale be beneficial?

Calculate the net benefit (or cost) to Motocar Corp. if the Wheel Division accepts the offer from the Van Division.

$Answer

per wheel