Question
Spice Company has two divisions, Parsley and Sage. Parsley produces a unit that Sage could use in its production. Sage currently is purchasing 50,000 units
Spice Company has two divisions, Parsley and Sage. Parsley produces a unit that Sage could use in its production. Sage currently is purchasing 50,000 units from an outside supplier for $50. Parsley is operating at less than its full capacity of 550,000 and has variable costs of $27 per unit. The full cost to manufacture the unit is $38. Parsley currently sells 450,000 units at a selling price of $54. If an internal transfer is made, variable shipping and administrative costs of $2 per unit could be avoided. What would be the impact on Spice Company's overall profits if the internal transfer were made?
A. no change in overall profits
B. $1,250,000 increase in profits
C. $200,000 decrease in profits
D. $700,000 increase in profits
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