Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

2. The Blade Division of Dana Company produces hardened steel blades. Approximat

ID: 2475863 • Letter: 2

Question

2.

The Blade Division of Dana Company produces hardened steel blades. Approximately one-third of the Blade Division's output is sold to the Lawn Products Division of Dana; the remainder is sold to outside customers. Blade Division's estimated sales and cost data for the year ending June 30th are as follows:

Lawn
Products
Division



Outsiders

Sales

$15,000

$40,000

Variable costs

10,000

20,000

Fixed costs

  3,000

  6,000

Gross margin

$2,000

$14,000

Unit sales

10,000

20,000


The Lawn Products Division has an opportunity to purchase on a continual basis 10,000 blades (of identical quality) from an outside supplier, at a cost of $1.25 per unit. Assume that the Blade Division cannot sell any additional products to outside customers. Assume, too, that there are no short-term avoidable fixed costs. Based solely on short-term financial considerations, should Dana allow its Lawn Products Division to purchase the blades from the outside supplier, and why?

Lawn
Products
Division



Outsiders

Sales

$15,000

$40,000

Variable costs

10,000

20,000

Fixed costs

  3,000

  6,000

Gross margin

$2,000

$14,000

Unit sales

10,000

20,000

Explanation / Answer

If purchased from outside supplier :

No,Dana company shall not allow purchase of blades from outside as its overall income will decrease by $ 2500 if purchased from outsiders .

Incremental cost    [10000*1.25] -12500 Less:Incremntal savings Variable cost   10000 Net incremental savings /(cost) -2500
Hire Me For All Your Tutoring Needs
Integrity-first tutoring: clear explanations, guidance, and feedback.
Drop an Email at
drjack9650@gmail.com
Chat Now And Get Quote