The Nicholson and Cage Divisions are in the same company.Currently the Cage Division buys a part from the Nicholson Division for $82 per unit.The Nicholson Division wants to increase the price of the part to $100 per unit.Cage Division can buy the part for $94 from an outside supplier.The cost data for the part obtained from the Nicholson Division is below:
If Nicholson does not provide the parts to Cage,it will save one-fourth of the fixed indirect production costs.The Nicholson Division has excess capacity but no alternative uses of the facilities.
Required:
A)From the standpoint of the company as a whole,should Cage Division continue to buy the part from Nicholson Division?
B)From the standpoint of Cage Division only,should Cage Division continue to buy the part from Nicholson Division?

Question

The Nicholson and Cage Divisions are in the same company.Currently the Cage Division buys a part from the Nicholson Division for $82 per unit.The Nicholson Division wants to increase the price of the part to $100 per unit.Cage Division can buy the part for $94 from an outside supplier.The cost data for the part obtained from the Nicholson Division is below:
  If Nicholson does not provide the parts to Cage,it will save one-fourth of the fixed indirect production costs.The Nicholson Division has excess capacity but no alternative uses of the facilities.
Required: 
A)From the standpoint of the company as a whole,should Cage Division continue to buy the part from Nicholson Division? 
B)From the standpoint of Cage Division only,should Cage Division continue to buy the part from Nicholson Division?

Quizplus · Accepted Answer

The Answer of The Nicholson and Cage Divisions are in the same company.Currently the Cage Division buys a part from the Nicholson Division for $82 per unit.The Nicholson Division wants to increase the price of the part to $100 per unit.Cage Division can buy the part for $94 from an outside supplier.The cost data for the part obtained from the Nicholson Division is below:
  If Nicholson does not provide the parts to Cage,it will save one-fourth of the fixed indirect production costs.The Nicholson Division has excess capacity but no alternative uses of the facilities.
Required: 
A)From the standpoint of the company as a whole,should Cage Division continue to buy the part from Nicholson Division? 
B)From the standpoint of Cage Division only,should Cage Division continue to buy the part from Nicholson Division?

The Nicholson and Cage Divisions Are in the Same Company