Question
RedEx Transports Rail Division has an annual capacity to process 800,000 tons of gravel used asa base under railroad tracks by railroads. The normal selling
RedEx Transports Rail Division has an annual capacity to process 800,000 tons of gravel used asa base under railroad tracks by railroads. The normal selling price is $62 per ton. At currentoperating levels, fixed costs are $10 per ton and variable costs are $32 per ton. The Air Divisionof RedEx Transport would like to buy 200,000 tons of gravel from the Rail Division to use inproducing quality aggregate to be used for runways. The Rail Division is operating at 100 percentof capacity. The Air Division currently buys the gravel for $55 per ton from an outside source.What is the lowest price the Rail Division should accept if it wishes to see no decline in profits?
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