The Microcrit Division of Siliton Computers produces computer chips that are sold to the Personal Computer Division and to outsiders. Operating data for the Microcrit Division for 2020 are as follows:

Internal Sales External Sales Sales:300,000 chips at $10 $3,000,000 200,000 chips at $12 $2,400,000 Variable expenses at $4 1,200,000 800,000 Contribution margin $1,800,000 $1,600,000 Fixed cost (allocated in units) 1,500,000 1,000,000 Operating income $ 300,000 $ 600,000 The Personal Computer Division has just received an offer from an outside supplier to furnish chips at $8.90 each. The manager of Microcrit Division is not willing to meet the $8.90 price. She argues that it costs her $9.00 to produce and sell each chip. Sales to outside customers are at a maximum of 200,000 Page 6 of 6 chips.

Required:

a. Verify the Microcrit Division's $9.00 unit cost figure.

b. Should the Microcrit Division meet the outside price of $8.90? Explain.

c. Could the $8.90 price be met and still show a profit for the Microcrit Division sales to the Personal Computer Division? Show computations.