Division A?s cost accounting records show that the cost of its product is $152 per unit?$105 in variable costs and $47 in fixed costs. The market price of the product, $160, barely covers Division A?s cost of production plus its selling and administrative costs. Division A has a maximum capacity of 101,000 units; it is currently producing and selling 77,500 units. Division B makes a product that uses Division A?s product and would like to purchase 12,000 units from Division A for $155. With $42 additional variable costs, Division B produces and sells the product for $269. Division A?s manager is not happy with Division B?s offer and is refusing to sell.
Calculate the increase in corporate income in the following situations:
|a.||Division A sells 12,000 units to Division B for $155 each, and Division B produces and sells 12,000 units for $269.|
|b.||Division A does not sell to Division B. Division B purchases 12,000 units from an external supplier at $160 each and produces and sells 12,000 units for $269.|
|Increase in? |
Division A's cost accounting records show that the cost of its product is $152 per unit?$105 in variable costs
and $47 in fixed costs. The market price of the product, $160, barely covers...
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