The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. The Blade Division's estimated sales and cost data for the year ending June 30 are as follows: The Lawn Products Division has an opportunity to purchase 10,000 identical quality blades from an outside supplier at a cost of $1.25 per unit on a continual basis. Assume that the Blade Division cannot sell any additional products to outside customers. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why?

Question

The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. The Blade Division's estimated sales and cost data for the year ending June 30 are as follows:  The Lawn Products Division has an opportunity to purchase 10,000 identical quality blades from an outside supplier at a cost of $1.25 per unit on a continual basis. Assume that the Blade Division cannot sell any additional products to outside customers. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why?

Quizplus · Accepted Answer

The Answer of The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. The Blade Division's estimated sales and cost data for the year ending June 30 are as follows:  The Lawn Products Division has an opportunity to purchase 10,000 identical quality blades from an outside supplier at a cost of $1.25 per unit on a continual basis. Assume that the Blade Division cannot sell any additional products to outside customers. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why?

The Blade Division of Dana Company Produces Hardened Steel Blades