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The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of

The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. Blade Division's estimated sales and cost data for the year ending June 30th are as follows:

Lawn Products Division

Outsiders

Sales

$15,000

$40,000

Variable costs

10,000

20,000

Fixed costs

3,000

6,000

Gross margin

$2,000

$14,000

Unit sales

10,000

20,000

The Lawn Products Division has an opportunity to purchase on a continual basis 10,000 blades (of identical quality) from an outside supplier, at a cost of $1.25 per unit. Assume that the Blade Division cannot sell any additional products to outside customers. Assume, too, that there are no short-term avoidable fixed costs. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why?

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