Steven Company's records reveal the following: Variable costs:
The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.Division A wants to transfer the parts to Division B for $81 each.Division B can buy the parts for $75 per unit from an outside supplier.Division A has no excess capacity.The manager of Division B should ________.
A)buy the parts from the outside supplier for $75 each
B)buy the parts from Division A at $81 each
C)buy the parts from an outside supplier for $76 each
D)none of the above

Question

Steven Company's records reveal the following:   Variable costs:
 The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.Division A wants to transfer the parts to Division B for $81 each.Division B can buy the parts for $75 per unit from an outside supplier.Division A has no excess capacity.The manager of Division B should ________.
A)buy the parts from the outside supplier for $75 each 
B)buy the parts from Division A at $81 each 
C)buy the parts from an outside supplier for $76 each 
D)none of the above

Quizplus · Accepted Answer

Since the variable cost of Division B will not change whether it buys from Division A or an outside supplier, it should choose the cheaper alternative which is to buy the parts from the outside supplier at $75 per unit instead of $81 from Division A. This decision will result in reduced costs for Division B, and ultimately benefit the company as a whole.

Steven Company's Records Reveal the Following: Variable Costs