ia Production Unit buys 12,000 parts of a material used for manufacturing from C
ID: 2402832 • Letter: I
Question
ia Production Unit buys 12,000 parts of a material used for manufacturing from Califomia Division Unit 5) Currently, Georgia ornia Division has purchased new equipment and wants to increase the price to Georgia for $5 per unit. has costs and cost variances. Production Fixed costs per unit for California unit. David claims that he cannot afford to go higher than S5, as it will increase the unit's Georgia Production Unit can buy the part from an outside supplier for S5 per unit. The it that California Division incurs to produce each unit of the part is the variable costs of $2 a Division with the recent purchase of equipment are $2.50 the Cali ifornia Division has ample idle capacity to handle all of Georgia Plant Unit's needs without any Suppose that increase in fixed costs and without cutting into sales to outsiders. If California Divisionuses to price from Geor Company's profit as a whole? a. rgia Plant Unit, what would be overallimpact on the California Division's operating income and Suppose that California Division currently is selling all that it can produce to outside customers at its regular selling price of $6. If California Division sells the part to Georgia Production Unit at a price of $5 per unit, what would be the impact on California Division's operating income and Company's profit as a whole? b.Explanation / Answer
a) Instead of incurring a cost of $2 per unit, the company would have to incur a cost of $5 per unit to purchase from an outside supplier. Therefore, the company would be worse off by $36,000 per period = ($5 per unit - $2 per unit) ×12,000 units per period. b) Instead of being able to sell the units for $6 per unit on the outside market, the company would save $5 per unit if it sells them to Georgia Division The net effect is a reduction of $12,000 per period = ($6 per unit - $5 per unit)×12,000 units per period
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.