Division S of Goody Company makes a part with the following characteristics:$\begin{array}{lrr}
\text { Production capacity. } & \text {50,000 units } &\
\text {Selling price on the outside market. } &£ 20 \
\text {Variable costs per unit. } &£ 12 \
\text { Fixed costs per unit } &£ 3\
\end{array}$

Division B, another division in the same company, presently is purchasing 10,000 units of a similar part each period from an outside supplier, but would like to start purchasing from Division S. Division B is now paying a price of £18 per unit to the outside supplier.
-Suppose that Division S can sell all that it can produce to outside customers at its regular selling price. If Division S sells to Division B at a price of £18 per unit, the company as a whole will be

Question

Division S of Goody Company makes a part with the following characteristics:$\begin{array}{lrr}
  \text { Production capacity. } & \text {50,000 units  } &\
 \text {Selling price on the outside market.  } &£ 20 \
 \text {Variable costs per unit. } &£ 12 \
 \text { Fixed costs per unit } &£ 3\
\end{array}$
 
Division B, another division in the same company, presently is purchasing 10,000 units of a similar part each period from an outside supplier, but would like to start purchasing from Division S. Division B is now paying a price of £18 per unit to the outside supplier. 
-Suppose that Division S can sell all that it can produce to outside customers at its regular selling price. If Division S sells to Division B at a price of £18 per unit, the company as a whole will be

Quizplus · Accepted Answer

Division S would lose £2 per unit in contribution margin by selling to Division B instead of outside customers (£20 - £18). For 10,000 units, this results in a loss of £20,000 each period.

Division S of Goody Company Makes a Part with the Following