Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 16,100 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $19 each.Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division A refuses to accept the $19 price internally and Division B continues to buy from the outside supplier, the company as a whole will be:
A) worse off by $89,800 each period.
B) worse off by $10,100 each period.
C) worse off by $64,400 each period.
D) worse off by $12,800 each period.

Question

Division A makes a part with the following characteristics:  Division B, another division of the same company, would like to purchase 16,100 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $19 each.Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division A refuses to accept the $19 price internally and Division B continues to buy from the outside supplier, the company as a whole will be:
A) worse off by $89,800 each period. 
B) worse off by $10,100 each period. 
C) worse off by $64,400 each period. 
D) worse off by $12,800 each period.

Quizplus · Accepted Answer

The Answer of Division A makes a part with the following characteristics:  Division B, another division of the same company, would like to purchase 16,100 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $19 each.Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division A refuses to accept the $19 price internally and Division B continues to buy from the outside supplier, the company as a whole will be:
A) worse off by $89,800 each period. 
B) worse off by $10,100 each period. 
C) worse off by $64,400 each period. 
D) worse off by $12,800 each period.

Division a Makes a Part with the Following Characteristics