The Assembly Division of Canadian Car Company has offered to purchase 90,000 batteries from the Electrical Division for $104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are as follows:

Direct materials $40

Direct manufacturing labour 20

Variable factory overhead 12

Fixed factory overhead 40

Total $112

The Electrical Division has been selling 250,000 batteries per year to outside buyers at $136 each. Capacity is 350,000 batteries per year. The Assembly Division has been buying batteries from outside sources for $130 each.

Required:

a. Should the Electrical Division manager accept the offer as is, make a counter offer, or reject the offer? Explain.

b. From the company's perspective, will the internal sales be of any benefit? Explain