Problem 2 MVS, Inc. produces cleaning equipment, and operates several divisions.

Question

Problem 2 MVS, Inc. produces cleaning equipment, and operates several divisions. Division A produces a product that it sells to other companies for $25 per unit. It is currently operating at full capacity of 60,000 units per year Variable manufacturing cost is $13 per unit, and variable marketing cost is $3 per unit The company wishes to create a new d vision, Division B, to produce an innovative new tool that requires the use A's product (or one very similar). Division B will produce 20,000 units. Division B can purchase a product equivalent to Division A's from Company X for $18 per unit. However, MVS, Inc. is considering having Division A supply Division B with the product. If Division A supplies Division B, the transfer price would be $16 and there would be no marketing costs associated with the units. 1. From Division A's perspective the net benefit (cost) is? a. Net benefit of $360,000 b. Net cost of $180,000. c. Net cost of $120,000. d. Net cost of $60,000 2. From Division B's perspective the net benefit (cost) is? a. Net benefit of $100,000. b. Net benefit of $40,000. C. Net cost of $360,000. d. Net cost of $60,000. 3. From MVS, Inc.'s perspective the net benefit (cost) is? a. Net benefit of $180,000. b. Net benefit of $40,000. C. Net cost of $40,000 d. Net cost of $80,000

Explanation / Answer

1 Answer:- C. Net cost of $120000

2 Answer:- B. Net benefit of $40000

3 Answer:- D. Negative cost of $80000

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