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Stanco Inc. has two divisions: Electronics and Cocks. The Electronic Divisions (which is operating at capacity) makes a specialized circuit board called SA5 which it
Stanco Inc. has two divisions: Electronics and Cocks. The Electronic Divisions (which is operating at capacity) makes a specialized circuit board called SA5 which it sells to its regular customers for each. SA5 has a variable production cost of $8.25 per unit and a fixed production cost of $1.50 per unit. The Clocks Division developed a new product for which it needs to use SA5 as a component part. The cost of the clock Division's new product follows: The manager of the Clock's Division feels that to successfully market the new product she can't quote a price greater that $70 per unit. To keep the price at $70 or less, she can't pay more than $9 per unit to the Electronics Division for each unit of SA5. Suppose the total demand for the new product is expected to reach 10,000 units. If the Electronics Division agrees to transfer the needed SA5s at $9 per unit for the sales of the new product at $70 per unit, how much will he whole company's profitability increase or decrease? A. Decrease by $35,000 B. Increase by $82, 500 C. Increase by $67, 500 D. Decrease by $7, 500 E. None of the above
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