Asked by Meliza Acosta on Jun 03, 2024
Verified
Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A agrees to sell the parts to Division B at $24 per unit, the company as a whole will be:
A) better off by $5,000 each period.
B) worse off by $15,000 each period.
C) worse off by $5,000 each period.
D) There will be no change in the profits of the company as a whole.
Operating At Capacity
The state of a company utilizing its resources, such as production facilities, at maximum potential without incurring additional capital expenditures.
Usual Selling Price
The regular or typical price at which a product is sold under normal market conditions.
Outside Supplier
A third-party company or organization that provides goods or services to another company, often part of the supply chain.
- Determine the impact of intra-company sales on the overall profitability of the company.
Verified Answer
Learning Objectives
- Determine the impact of intra-company sales on the overall profitability of the company.
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