P7. Division S of Goody Company makes a part with the following characteristics:
ID: 2515961 • Letter: P
Question
P7. Division S of Goody Company makes a part with the following characteristics: Production capacity 50,000 units $20 S12 S3 Selling price on the outside market Variable costs per unit Fixed costs per unit Division B, another division in the same company, presently is purchasing 10, each period from an outside supplier, but would like to start purchasing from Division now paying a price of $18 per unit to the outside supplier. units of a similar part S. Division B is 1. Suppose that Division S has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outsiders. If Division S refuses to accept the 1 price from Division B, what would be overall impact on the company's profit as a whole? Use plus or minus "to denote the impact. "+" 2. Suppose that Division S can sell all that it can produce to outside customers at its regular selling prie If Division S sells to Division B at a price of $18 per unit, what would be impact on company's profit as a whole? Use plus "+” or minus "-" to denote the impact.Explanation / Answer
1.
Price from Division B = 18
Relavent costs = Variable cost per unit = 12
Contribution margin lost = (18-12) * 10,000 = 60,000
Impact on company profit as a whole = (60,000)
2.
Selling price = 18
Relavent costs = Variable cost per unit = 12
Contribution margin increase = (18-12) * 10,000 = 60,000
Impact on company profit as a whole = 60,000
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