Question
Truball Incorporated which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials because division
Truball Incorporated which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials because division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows:
Outside price for materials | $ 190 | |
---|---|---|
Division As annual purchases | 14,000 | units |
Division Bs variable costs per unit | $ 180 | |
Division Bs fixed costs, per year | $ 1,330,000 | |
Division Bs capacity utilization | 100% |
Required:
1. Assume that division B cannot sell its materials to outside buyers. Calculate the net cost or benefit to the company as a whole if Division A purchases the materials outside the company.
2-a. Assume that division B can save $250,000 in fixed costs if it does not manufacture the material for Division A. Calculate the net cost or benefit to the company as a whole for A to purchase outside the company.
2-b. From the standpoint of the effect of the transaction on the company as a whole, should Division A purchase from the outside market?
3-a. Assume the situation in Requirement 1. If the outside market value for the materials drops $24, calculate the net cost or benefit to the company as a whole for A to purchase outside the company.
3-b. From the standpoint of the effect of the transaction on the company as a whole, should Division A purchase from the outside market?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started