Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail is operating at capacity,what would be the cost savings if the transfer were made and Marlin currently is purchasing 100,000 units on the open market?
A)$0
B)$700,000
C)$800,000
D)$1,200,000

Question

Quizplus · Accepted Answer

Since Quail is operating at capacity, transferring widgets to Marlin would mean Quail would have to reduce its sales in the open market. Therefore, there would be no cost savings as Quail would lose the opportunity to sell at $12 each in the open market.