Chipper Division of Acme Corp.sells 80,000 units of part Z-25 to the outside market.Part Z-25 sells for $40,has a variable cost of $22,and a fixed cost per unit of $10.Chipper has a capacity to produce 100,000 units per period.Jones Division currently purchases 10,000 units of part Z-25 from Chipper for $40.Jones has been approached by an outside supplier willing to supply the parts for $36.What is the effect on Acme's overall profit if Chipper ACCEPTS the outside price and Jones continues to buy inside?
A)no change
B)$140,000 decrease in Acme profits
C)$80,000 decrease in Acme profits
D)$40,000 increase in Acme profits

Question

Quizplus · Accepted Answer

By accepting the outside price, Chipper will reduce its profit by $4 per unit on the 10,000 units sold to Jones. However, Chipper will increase its profit by $4 per unit on the 70,000 units sold to the outside market. The net effect is no change in Acme's overall profit.