Reno Company is a decentralized company that has two divisions, Division A and Division B. Division A has the capacity to manufacture 24,000 units of a product that could be used by Division B. Division A currently is selling 16,000 units of the product to customers outside the company, incurring the following costs: variable costs of Dh7 per unit and total fixed costs of Dh48,000. The selling price to these customers is Dh16 per unit.

Division B needs 4,000 units of the product that Division A makes. Currently, it is purchasing the units from an outside supplier at a price of Dh15 each. Division B offers to purchase the units from Division A at a price of Dh12; the managers of Division A say the price must be at least Dh14. The managers of the two divisions appear to have reached a stalemate, which threatens to prevent the transfer from occurring within the company.

Required:

a) Is it in the best interest of Reno Company for Division B to purchase the units from Division A? Discuss by incorporating relevant numbers in your answer(s). (3 marks)

b) If the transfer is in the best interest of the company as a whole, should the top managers of Reno Company order the division managers to come to terms? How might the top management of Reno handle the situation other than by ordering the division managers to make the transfer? (2 marks)

c) Assume that you had to decide whether to continue making a component part or to begin buying the part from an overseas supplier, explain ONE (1) quantitative and ONE (1) qualitative factors which would influence your decision. (2 marks)