Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail has excess capacity,what would be the cost savings if the transfer were made and Marlin currently is purchasing 100,000 units on the open market?
A)$0
B)$700,000
C)$800,000
D)$1,200,000

Question

Quizplus · Accepted Answer

If Quail has excess capacity, the cost savings would be the difference between the market price and Quail's variable cost, which is $12 - $4 = $8 per widget. For 100,000 units, the savings would be 100,000 * $8 = $800,000.