Division S sells its product to unrelated parties at a price of $20 per unit.It incurs variable costs of $7 per unit and has fixed costs of $50,000 per month.Monthly production is generally 10,000 units.Division B uses Division S's product in its operations.It can purchase the units from Division S at $20 per unit,but must pay a $1.50 per unit in shipping costs.Alternatively,Division B can buy from Division S's competition at a delivered price of $21 per unit.Required:
a.From the company's perspective,should Division B purchase the units internally or externally? Assume Division S has ample capacity to handle all of Division B's needs.b.Would your answer change if Division S can sell everything it produces to outside customers?

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The Answer of Division S sells its product to unrelated parties at a price of $20 per unit.It incurs variable costs of $7 per unit and has fixed costs of $50,000 per month.Monthly production is generally 10,000 units.Division B uses Division S's product in its operations.It can purchase the units from Division S at $20 per unit,but must pay a $1.50 per unit in shipping costs.Alternatively,Division B can buy from Division S's competition at a delivered price of $21 per unit.Required:
a.From the company's perspective,should Division B purchase the units internally or externally? Assume Division S has ample capacity to handle all of Division B's needs.b.Would your answer change if Division S can sell everything it produces to outside customers?

Division S Sells Its Product to Unrelated Parties at a Price