(Appendix 12A)The DVD Division of Sound Company makes and sells compact DVD players (DVDP)that it presently sells to outside customers.Budgeted costs next month for the DVD Division are as follows: MaxiSound, another division of Sound Company, would like to buy 1, 000 of the DVDPs from the DVD Division.An outside supplier has offered to sell similar DVDPs to MaxiSound for $170 each. Assume the DVD Division's monthly production capacity is 4, 000 units.If the DVD Division sells 1, 000 DVDPs to MaxiSound for $170 each, the monthly effect on the profits of DVD Division will be a:
A)$65, 000 increase
B)$50, 000 increase
C)$185, 000 increase
D)$170, 000 increase

Question

(Appendix 12A)The DVD Division of Sound Company makes and sells compact DVD players (DVDP)that it presently sells to outside customers.Budgeted costs next month for the DVD Division are as follows:  MaxiSound, another division of Sound Company, would like to buy 1, 000 of the DVDPs from the DVD Division.An outside supplier has offered to sell similar DVDPs to MaxiSound for $170 each. Assume the DVD Division's monthly production capacity is 4, 000 units.If the DVD Division sells 1, 000 DVDPs to MaxiSound for $170 each, the monthly effect on the profits of DVD Division will be a:
A)$65, 000 increase 
B)$50, 000 increase 
C)$185, 000 increase 
D)$170, 000 increase

Quizplus · Accepted Answer

In this situation, there is no opportunity cost and the DVD Division's profits would increase by ($170 per unit - $120 per unit)× 1, 000 units = $50, 000.

(Appendix 12A)The DVD Division of Sound Company Makes and Sells