Alpha International Corporation has two divisions, beta and gamma. Beta produces

Question

Alpha International Corporation has two divisions, beta and gamma. Beta produces an electronic component that sells for $80 per unit, with the following costs based on its capacity of 219,800 units: Direct materials Direct labour Variable overhead Fixed overhead $24.00 16.00 7.00 15.00 Beta is operating at 70% of normal capacity and gama is purchasing 18,000 units of the same component from an outside supplier for $77 per unit. Calculate the benefit, if any, to beta in selling to gama 18,000 at the outside supplier's price. Benefit $ per unit

Explanation / Answer

Fixed cost will continue to occur even if offer is not accepted.

Particulars Amt Sales Price 77 Less: Direct Material 24 Less: Direct Labor 16 Add: Variable Overhead 7 Benefit Per unit 30

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