Division A makes a part with the following characteristics:

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 $28 each.
-Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A agrees to sell the parts to Division B at $28 per unit, the company as a whole will be:
A)better off by $20,000 each period.
B)worse off by $10,000 each period.
C)worse off by $40,000 each period.
D)There will be no change in the profits of the company as a whole.

Question

Division A makes a part with the following characteristics:

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 $28 each.
-Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A agrees to sell the parts to Division B at $28 per unit, the company as a whole will be:
A)better off by $20,000 each period. 
B)worse off by $10,000 each period. 
C)worse off by $40,000 each period. 
D)There will be no change in the profits of the company as a whole.

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 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 $28 each.
-Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A agrees to sell the parts to Division B at $28 per unit, the company as a whole will be:
A)better off by $20,000 each period. 
B)worse off by $10,000 each period. 
C)worse off by $40,000 each period. 
D)There will be no change in the profits of the company as a whole.

Division a Makes a Part with the Following Characteristics