Division X makes a part with the following characteristics: Production capacity 25,000 units Selling price to outside customers $18 Variable cost per unit $11 Fixed costs, total $100,000 Division Y of the same company would like to purchase 10,000 units each period from Division X. Division Y now purchases the part from an outside supplier at a price of $17 each. Suppose Division X has sufficient excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division X refuses to accept the $17 price internally and Division Y continues to buy from the outside supplier, the company as a whole will be: O better off by $60,000 each period. worse off by $60,000 each period. worse off by $70,000 each period. better off by $10,000 each period. worse off by $20,000 each period.

Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints
Section: Chapter Questions
Problem 3CE: Patz Company produces two types of machine parts: Part A and Part B, with unit contribution margins...
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Division X makes a part with the following characteristics:
Production capacity
25,000 units
Selling price to outside customers $18
Variable cost per unit
$11
Fixed costs, total
$100,000
Division Y of the same company would like to purchase 10,000 units each period from Division X. Division Y
now purchases the part from an outside supplier at a price of $17 each. Suppose Division X has sufficient
excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting
into sales to outside customers. If Division X refuses to accept the $17 price internally and Division Y
continues to buy from the outside supplier, the company as a whole will be:
better off by $60,000 each period.
O worse off by $60,000 each period.
worse off by $70,000 each period.
better off by $10,000 each period.
worse off by $20,000 each period.
O
O
O
O
<
Transcribed Image Text:Division X makes a part with the following characteristics: Production capacity 25,000 units Selling price to outside customers $18 Variable cost per unit $11 Fixed costs, total $100,000 Division Y of the same company would like to purchase 10,000 units each period from Division X. Division Y now purchases the part from an outside supplier at a price of $17 each. Suppose Division X has sufficient excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division X refuses to accept the $17 price internally and Division Y continues to buy from the outside supplier, the company as a whole will be: better off by $60,000 each period. O worse off by $60,000 each period. worse off by $70,000 each period. better off by $10,000 each period. worse off by $20,000 each period. O O O O <
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