Question
The Delta Manufacturing Company has two divisions in Ontario, Canada, Division One and Division Two. Currently, Division Two buys a part (10,000 units) from Division
The Delta Manufacturing Company has two divisions in Ontario, Canada, Division One and Division Two. Currently, Division Two buys a part (10,000 units) from Division One for $16 per unit. Division One has purchased new equipment and wants to increase the price to Division Two to $18 per unit. The controller of Division Two claims that she cannot afford to go that high, as it will decrease the Division Twos profit to near zero. Division Two can buy the part from an outside supplier for $16 per unit. The incremental costs per unit that Delta incurs to produce each unit are Division Ones variable costs of $12. Fixed costs per unit for Division One with the recent purchase of equipment are $5.
Division One could use its facilities for other manufacturing operations that would result in monthly cash operating savings of $45,000, what would be the advantage (disadvantage) to Delta?(A) $20,000(B) $(25,000)(C) $25,000(D) $5,000
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