Given the following data for Handle Division:
$$\begin{array} { | l | r | }
\hline \text { Selling price to outside customers } & \$ 150 \
\hline \text { Variable cost per unit } & 80 \
\hline \text { Fixed cost per unit (based on capacity) } & 30 \
\hline \text { Capacity (in units) } & 50,000 \
\hline
\end{array}$$Cabinet Division would like to purchase 10,000 units from the Handle Division at a price of $125 per unit.Handle Division has no excess capacity to handle the Cabinet Division's requirements.The Cabinet Division currently purchases from an outside supplier at a price of $140.If the Handle Division accepts a $125 price internally,the company,as a whole,will be better or worse off by:
A) $600,000
B) $(100,000)
C) $115,000
D) $250,000

Question

Given the following data for Handle Division: 
$$\begin{array} { | l | r | } 
\hline \text { Selling price to outside customers } & \$ 150 \
\hline \text { Variable cost per unit } & 80 \
\hline \text { Fixed cost per unit (based on capacity) } & 30 \
\hline \text { Capacity (in units) } & 50,000 \
\hline
\end{array}$$Cabinet Division would like to purchase 10,000 units from the Handle Division at a price of $125 per unit.Handle Division has no excess capacity to handle the Cabinet Division's requirements.The Cabinet Division currently purchases from an outside supplier at a price of $140.If the Handle Division accepts a $125 price internally,the company,as a whole,will be better or worse off by:
A) $600,000
B) $(100,000)
C) $115,000
D) $250,000

Quizplus · Accepted Answer

If the Handle Division accepts the internal price of $125 per unit, it would mean a loss of $15 per unit compared to the outside supplier's price of $140. Therefore, the company as a whole would be worse off by $15 x 10,000 units = $150,000. Additionally, since Handle Division has no excess capacity to produce the additional 10,000 units, they would have to turn down other potential customers who may be willing to buy at a higher price, resulting in a further loss of potential revenue. Therefore, the best choice would be for the Handle Division to decline the offer from Cabinet Division and continue to sell at a higher price to other customers.

Given the Following Data for Handle Division Cabinet Division Would Like to Purchase 10,000 Units from the l