Division A makes a part with the following characteristics: Production capacity
ID: 2374989 • Letter: D
Question
Division A makes a part with the following characteristics:
Production capacity in units 16,900 units
Selling price to outside customers $33
Variable cost per unit $16
Total fixed costs $61,900
Division B, another division of the same company, would like to purchase 6,900 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $32 each.
Part 1:
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, the company as a whole will be:
A: worse off by $10,000 each period.
B: better off by $16,900 each period.
C: worse off by $110,400 each period.
D: worse off by $117,300 each period.
Explanation / Answer
C: worse off by $110,400 each period