Question
Xyz Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase stuffing, a key component, from
Xyz Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase stuffing, a key component, from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at P20 per pound for the next year. The Production Division recently increased its unit price to P40. The manager of the Production Division presented the following information: variable cost P32 and fixed cost P8 t o top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases 20,000 pounds of stuffing per month. What would be the monthly operating advantage (disadvantage) of purchasing the goods internally, assuming the external supplier increased its price to P50 per pound and the Production Division is able to utilize the facilities for other operations, resulting in a monthly cash-operating savings of P30 per pound?
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