The Post Division of the M.T. Woodhead Company produces basic posts that can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year, the Lamp Division bought all of its 25,000 posts from the Post Division at $1.50 each. The following data are available for last year's activities of the Post Division:

The total fixed costs would be the same for all the alternatives considered below.
-Suppose the transfer of posts to the Lamp Division will cut into sales to outside customers by 15,000 units.Further suppose that an outside supplier is willing to provide the Lamp Division with basic posts at $1.45 each.If the Lamp Division chooses to buy all of its posts from the outside supplier instead of the Post Division,what will be the change in operating income for the company as a whole?
A) $1,000 decrease.
B) $1,250 decrease.
C) $10,250 increase.
D) $13,750 decrease.

Question

The Post Division of the M.T. Woodhead Company produces basic posts that can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year, the Lamp Division bought all of its 25,000 posts from the Post Division at $1.50 each. The following data are available for last year's activities of the Post Division:

The total fixed costs would be the same for all the alternatives considered below.
-Suppose the transfer of posts to the Lamp Division will cut into sales to outside customers by 15,000 units.Further suppose that an outside supplier is willing to provide the Lamp Division with basic posts at $1.45 each.If the Lamp Division chooses to buy all of its posts from the outside supplier instead of the Post Division,what will be the change in operating income for the company as a whole?
A) $1,000 decrease. 
B) $1,250 decrease. 
C) $10,250 increase. 
D) $13,750 decrease.

Quizplus · Accepted Answer

The Answer of The Post Division of the M.T. Woodhead Company produces basic posts that can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year, the Lamp Division bought all of its 25,000 posts from the Post Division at $1.50 each. The following data are available for last year's activities of the Post Division:

The total fixed costs would be the same for all the alternatives considered below.
-Suppose the transfer of posts to the Lamp Division will cut into sales to outside customers by 15,000 units.Further suppose that an outside supplier is willing to provide the Lamp Division with basic posts at $1.45 each.If the Lamp Division chooses to buy all of its posts from the outside supplier instead of the Post Division,what will be the change in operating income for the company as a whole?
A) $1,000 decrease. 
B) $1,250 decrease. 
C) $10,250 increase. 
D) $13,750 decrease.