Mar Company has two decentralized divisions,X and Y.Division X has been purchasing certain component parts from Division Y at $75 per unit.Because Division Y plans to raise the price to $100 per unit,Division X desires to purchase these parts from external suppliers for $75 per unit.The following information is available:

If Division X buys from an external supplier,the facilities Division Y uses to manufacture these parts will be idle.Assuming Division Y's fixed costs cannot be avoided,what is the result if Mar requires Division X to buy from Division Y at a transfer price of $100 per unit?

Question

Mar Company has two decentralized divisions,X and Y.Division X has been purchasing certain component parts from Division Y at $75 per unit.Because Division Y plans to raise the price to $100 per unit,Division X desires to purchase these parts from external suppliers for $75 per unit.The following information is available:
  
If Division X buys from an external supplier,the facilities Division Y uses to manufacture these parts will be idle.Assuming Division Y's fixed costs cannot be avoided,what is the result if Mar requires Division X to buy from Division Y at a transfer price of $100 per unit?

Quizplus · Accepted Answer

The Answer of Mar Company has two decentralized divisions,X and Y.Division X has been purchasing certain component parts from Division Y at $75 per unit.Because Division Y plans to raise the price to $100 per unit,Division X desires to purchase these parts from external suppliers for $75 per unit.The following information is available:
  
If Division X buys from an external supplier,the facilities Division Y uses to manufacture these parts will be idle.Assuming Division Y's fixed costs cannot be avoided,what is the result if Mar requires Division X to buy from Division Y at a transfer price of $100 per unit?

Mar Company Has Two Decentralized Divisions,X and Y