Internal or External Acquisitions: No Opportunity Costs The Van Division of Moto

Question

Internal or External Acquisitions:
No Opportunity Costs
The Van Division of MotoCar Corporation has offered to purchase 180,000 wheels from the Wheel Division for $40 per wheel. At a normal volume of 500,000 wheels per year, production costs per wheel for the Wheel Division are as follows:

The Wheel Division has been selling 500,000 wheels per year to outside buyers at $60 each. Capacity is 700,000 wheels per year. The Van Division has been buying wheels from outside suppliers at $56 per wheel.

Calculate the net benefit (or cost) to Motocar Corp. if the Wheel Division accepts the offer from the Van Division.
$Answer per wheel

Explanation / Answer

Net Profit if wheel division accepts the offer from the van division Purchase from wheel 40 Add: Fixed Overheads 18 Total 58 Selling Price 60 Net profit 60-58 2 Units 180000 360000 Other units cost 50 Total = 60-50 10 Profit 360000*10 3600000

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