Castle Homes Corporation
the Carpet Division of Castle Homes Corporation $\$ 2,000,000$

Castle Homes Corporation
The Carpet Division of Castle Homes Corporation manufactures a single grade of residential grade carpeting.The division has the capacity to produce 500,000 square yards of carpet each year.Its current costs and revenues are shown here:
Sales (400,000 square yards)                                 $\$ 2,000,000$
Variable costs per square yard:
Production                                                             $\$ 2.00$
SG&A                                                                      1.00
Fixed costs per square yard (based on 500,000 yard capacity)
Production                                                               $\$ 0.50$
SG&A                                                                      1.00
The Housing Division currently purchases 40,000 yards of carpeting (of the grade produced by the Carpet Division)each year at a cost of $6.50 per square yard from an outside vendor.
Refer to Castle Homes Corporation.Assume,for this question only,that the Carpet Division is producing and selling 500,000 square yards of carpet to external buyers at a price of $5 per square yard.What would be the effect on overall corporate profits if Carpet Division reduces external sales of carpet by 40,000 square yards and transfers the 40,000 square yards of carpet to the Housing Division?