Lou Company's records reveal the following: Variable costs:
The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier.Division X wants to transfer the components to Division Y for $34 each.Division Y can buy the component for $32 per unit from an outside supplier.Division X has no excess capacity.The manager of Division Y should ________.
A)buy the components from the outside supplier for $32 each
B)buy the components from Division X at $34 each
C)buy the components from an outside supplier for $33 each
D)none of the above

Question

Lou Company's records reveal the following:   Variable costs:
 The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier.Division X wants to transfer the components to Division Y for $34 each.Division Y can buy the component for $32 per unit from an outside supplier.Division X has no excess capacity.The manager of Division Y should ________.
A)buy the components from the outside supplier for $32 each 
B)buy the components from Division X at $34 each 
C)buy the components from an outside supplier for $33 each 
D)none of the above

Quizplus · Accepted Answer

Division Y should buy the component from the outside supplier at $32 per unit. This is because it will save $2 per unit in variable costs, as buying from Division X at $34 per unit will not result in any cost savings for Division Y. Therefore, buying from an outside supplier is the best option for Division Y.

Lou Company's Records Reveal the Following: Variable Costs