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New England Corporation Has Two Divisions,Providence and Buffalo,and Evaluates Management

Question 63

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New England Corporation has two divisions,Providence and Buffalo,and evaluates management on the basis of return on investment.Providence currently makes a part that it sells to both Buffalo and outsiders.Selected data follow. New England Corporation has two divisions,Providence and Buffalo,and evaluates management on the basis of return on investment.Providence currently makes a part that it sells to both Buffalo and outsiders.Selected data follow.   Providence is seeking an increase in its selling price to $28 per unit because of rising costs.Buffalo can obtain comparable units from an outside supplier for $23;however,if Buffalo uses the supplier,Providence will have idle capacity because of an inability to increase sales to outsiders.From the perspective of New England Corporation: A) Providence should continue to do business with Buffalo and charge $28 per unit. B) Providence should continue to do business with Buffalo and charge $25 per unit. C) Providence should continue to do business with Buffalo because Providence's variable cost per unit is only $18. D) Buffalo should do business with the outside supplier. E) Buffalo should split its business between Providence and the outside supplier.
Providence is seeking an increase in its selling price to $28 per unit because of rising costs.Buffalo can obtain comparable units from an outside supplier for $23;however,if Buffalo uses the supplier,Providence will have idle capacity because of an inability to increase sales to outsiders.From the perspective of New England Corporation:


A) Providence should continue to do business with Buffalo and charge $28 per unit.
B) Providence should continue to do business with Buffalo and charge $25 per unit.
C) Providence should continue to do business with Buffalo because Providence's variable cost per unit is only $18.
D) Buffalo should do business with the outside supplier.
E) Buffalo should split its business between Providence and the outside supplier.

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