Solved

Division a Makes a Part with the Following Characteristics Division B, Another Division of the Same Company, Would Like

Question 136

Multiple Choice

Division A makes a part with the following characteristics:
 Production Capacity in Units 15,000 units  Selling Price to Outside Customers $25 Variable Cost per Unit $18 Total Fixed Costs $60,000\begin{array}{|l|r|}\hline \text { Production Capacity in Units } & 15,000 \text { units } \\\hline \text { Selling Price to Outside Customers } & \$ 25 \\\hline \text { Variable Cost per Unit } & \$ 18 \\\hline \text { Total Fixed Costs } & \$ 60,000 \\\hline\end{array}
Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of \$24 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 B continues to purchase parts from an outside supplier rather than from Division A,what will be the effect on the operating income of the company as a whole?


A) Lower by $30,000 each period.
B) Lower by $10,000 each period.
C) Higher by $15,000 each period.
D) Lower by $35,000 each period.

Correct Answer:

verifed

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions

Unlock this Answer For Free Now!

View this answer and more for free by performing one of the following actions

qr-code

Scan the QR code to install the App and get 2 free unlocks

upload documents

Unlock quizzes for free by uploading documents