Given the following data for Division L: Selling price to outside customers Vari

Question

Given the following data for Division L: Selling price to outside customers Variable cost per unit Fixed cost per unit (based on capacity) Capacity (in units) $150 $80 30 50,000 Division N would like to purchase 10,000 units from Division L at a price of $125 per unit. Division L has no excess capacity to handle Division N's requirements Division N currently purchases from an outside supplier at a price of $140. If Division L accepts a $125 price internally, the company, as a whole, will be better or worse off by Select one: $600,000 $100,000 $115,000 $250,000

Explanation / Answer

Savings in cost by not purchasing outside 600000 =10000*(140-80) Loss in contribution margin -700000 =10000*(150-80) Net effect on income -100000 The company will be worse off by $100000

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