Truball, Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since Division B informed it that the division's selling price for the same materials would increase to $200. Information for Division

A and Division B follows:

Problem Information

Outside price for materials ......................................... 150

Division A's annual purchases ...................................... 10000 units

Division B's variable costs per unit ............................... 140

Division B's fixed costs, per year .................................. 1250000

Division B's capacity utilization .................................... 1

Requirements:

1. Will the company benefit if division A purchases outside the company? Assume that division B cannot sell its materials to outside buyers.

2. Assume that division B can save $200,000 in fixed costs if it does not manufacture the material for division A. Should division A purchase from the outside market? 

3. Assume the situation in requirement 1. If the outside market value for the materials drops $20, should A buy from the outside? Explain.