TK Electronics is a manufacturer with two departments: Computer Chips and Cell Phones. The computer chip that is produced in the Chips Department can be sold to customers at $2.50 per chip. The costs associated with the computer chips are as follows:

The Cell Phone Department has been purchasing the chips that they need for $2.25 per chip from Chips R Us, but the manager was thinking that if the Chips Department could supply the chips for less than what Chips R Us is asking, then they would arrange a transfer between departments instead of giving the business to an external company. The Cell Phone Department requires 30,000 chips per period. Variable marketing and administrative expenses can be reduced by 75% if the units are transferred internally.
Required:
Prepare an analysis that demonstrates if the Chips Department should supply the chips to the Cell Phone Department.

Question

TK Electronics is a manufacturer with two departments: Computer Chips and Cell Phones. The computer chip that is produced in the Chips Department can be sold to customers at $2.50 per chip. The costs associated with the computer chips are as follows:
 
 The Cell Phone Department has been purchasing the chips that they need for $2.25 per chip from Chips R Us, but the manager was thinking that if the Chips Department could supply the chips for less than what Chips R Us is asking, then they would arrange a transfer between departments instead of giving the business to an external company. The Cell Phone Department requires 30,000 chips per period. Variable marketing and administrative expenses can be reduced by 75% if the units are transferred internally.
Required:
Prepare an analysis that demonstrates if the Chips Department should supply the chips to the Cell Phone Department.

Quizplus · Accepted Answer

The Answer of TK Electronics is a manufacturer with two departments: Computer Chips and Cell Phones. The computer chip that is produced in the Chips Department can be sold to customers at $2.50 per chip. The costs associated with the computer chips are as follows:
 
 The Cell Phone Department has been purchasing the chips that they need for $2.25 per chip from Chips R Us, but the manager was thinking that if the Chips Department could supply the chips for less than what Chips R Us is asking, then they would arrange a transfer between departments instead of giving the business to an external company. The Cell Phone Department requires 30,000 chips per period. Variable marketing and administrative expenses can be reduced by 75% if the units are transferred internally.
Required:
Prepare an analysis that demonstrates if the Chips Department should supply the chips to the Cell Phone Department.

TK Electronics Is a Manufacturer with Two Departments: Computer Chips